One bull is using options to get long Questcor Pharmaceuticals
following a giant selloff this week.
Our Heat Seeker tracking system shows the purchase of 4,209 October
35 calls for $2.40 and the sale of an equal number of October 40
calls for $0.80. Volume exceeded open interest at both strikes,
indicating a new position was implemented.
The trade resulted in a cost of $1.60 and will earn a maximum
profit of 213 percent if the drug maker closes at or above $40 on
QCOR is up 6.33 percent to $32.25 in early afternoon trading. It
started the week above $50, but plunged below $25 on Wednesday
after short sellers at Citron Research raised questions about
whether health insurers will pay for its expensive H.P. Acthar
drug. Management issued a statement downplaying the allegations,
and the stock has been fighting its way back since.
has driven up option premiums, so it would be very expensive to buy
the October calls outright. Selling the upside contracts reduced
the cost and lowers the level at which the trade becomes
profitable. (See our
section for more on the strategy, known as a
Overall option volume is more than twice the daily average in QCOR
so far today, with calls outnumbering puts by almost 2 to 1.
I own a covered call in QCOR.
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