How volatility bull is playing Ariad

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Ariad Pharmaceuticals is starting to move, and one trader is looking for option prices to catch up.

optionMONSTER's tracking systems detected the purchase of 3,150 August 6 puts for $0.85 and 3,150 August 8 calls for $0.60. Volume was more than 8 times open interest in both strikes.

ARIA ARIA is unchanged at $6.38 in morning trading and is up 74 percent in the last three months. The drug-development stock has been rallying amid optimism surrounding its ridaforolimus cancer drug.

Positive data from a late-stage trial caused the stock to gap higher on Jan. 18, and now investors are waiting for partner Merck to seek marketing approval from the drug.

Today's option trade, known as a strangle, is designed to profit from ARIA making a sharp move higher or lower. The trade, which cost $1.45 to implement, also stands to profit from higher option premiums that would increase the value of the calls and puts. (See our Education section)

Implied volatility in the name is about 62 percent, considerably below its historical movement in the last two months. If implied volatility rises to match realized volatility, it would increase the value of the calls and puts and make money for the strangle buyer.

Overall option volume in ARIA is about triple the daily average so far today.

(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 The NASDAQ OMX Group, Inc.

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


This article appears in: Investing , Options

Referenced Stocks: ARIA

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