Calendar spread marks time in Ventrus

By David Russell,

Shutterstock photo

One investor thinks Ventrus Biosciences is going nowhere in a hurry.

optionMONSTER's tracking systems detected the sale of 1,000 June 10 puts for $2.50 and the purchase of an equal number of September 10 puts for $4.20. Volume was more than twice open interest at both strikes.

The trade cost $1.70 to open and is known as a calendar spread . It will profit from the different rates of time decay in the two contracts. If the stock moves sideways, the June puts sold short will lose value more quickly and the value of the spread will increase.

VTUS fell 0.77 percent to $9.04 yesterday and has been fluctuating between about $7 and $12 since last summer. Yesterday's calendar trade represents a bet that the pharmaceutical stock will remain in that range, and the position will earn its maximum profit slightly above the $10 level. The main thing the investor doesn't want is a big move higher or lower.

Another feature of the strategy is that the only money at risk is the initial $1.70, unlike other market-neutral trades that are opened for a credit. (See our Education section)

Overall option volume in VTUS was 18 times greater than average in the session.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: VTUS

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