Depomed is wavering after a big run, and one trader is
positioning for an eventual drop.
optionMONSTER's tracking systems detected the purchase of 2,000
March 5 puts for $1 and the sale of an equal number of December 5
puts for $0.125. Volume was above open interest in both strikes.
DEPO rose 0.93 percent to $5.40 yesterday. The maker of
drug-delivery systems is up 88 percent since Aug. 3, when Pfizer
decided not to file a patent-infringement lawsuit against its
formulation of the larger company's gabapentin epilepsy medicine.
DEPO also reported a surprise profit this month.
Yesterday's option trade is designed to profit from the stock
holding above $5 through Dec. 17, then pushing lower. That way the
contracts sold short will have expired and the long position in the
March puts will remain open.
The strategy is known as a calendar spread because it exploits the
different expiration dates of the two options. (See our Education
It would also benefit if implied volatility increases over the next
three weeks, but only if DEPO manages to remain above $5.
Overall option volume in the thinly traded name was 20 times
greater than average in the session.
(Chart courtesy of tradeMONSTER)
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