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 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
Overall option volume in ARIA is about triple the daily average so
(Chart courtesy of tradeMONSTER)
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