Calls look for Momenta momentum

By David Russell,

Shutterstock photo

Momenta Pharmaceuticals is starting to rally, and the option action is looking bullish.

Our Heat Seeker tracking program detected a surge of volume in the January 16 calls, which changed hands more than 7,300 times. The trades were scattered throughout the day, with a strong buying trend in evidence. Premiums rose from $1.30 to close at the highs of $1.95.

MNTA MNTA varied only by about $0.30 during that time, which indicates that a strong demand for the options, rather than a move in the share price, accounted for the higher premiums.

The stock ended the session up 2.87 percent to $17.10 and is up 14 percent in the last week. The drug maker, which just crossed the threshold from losses to profitability, has been on a wild ride in the last year, roughly doubling in late July after the Food and Drug Administration approved its generic version of Sanofi-Aventis' Lovenox anti-clotting medicine.

It then surrendered most of those gains and spent the rest of 2010 consolidating above its 200-
day moving average (purple line on chart). Each time it attempted to rally, the bears stepped in.

The steady selling drove short interest to about 26 percent of MNTA's float, which could cause forced buying and a potential squeeze if the shares continue higher.

Yesterday's call buying may have been the work of short sellers desperately looking to hedge their bearish positions or of bulls looking for the stock to rally. Regardless, the activity followed an implied volatility spike last week, which means that some traders have been looking for the shares to start moving.

(Chart courtesy of tradeMONSTER)

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: MNTA

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