How volatility seller is playing Biodel

By
A A A
Share |

Biodel has been rising on optimism about its Linjeta insulin product, and now one trader is selling volatility.

optionMONSTER's tracking program detected the sale of 5,000 March 2.50 puts for $0.40 and 5,000 March 7.50 calls for $1.35, resulting in a credit of $1.75. Volume was above open interest in both strikes.

BIOD The trade, known as a short strangle, will profit if the drug developer stays within a wide range between $0.75 and $9.25 through expiration. BIOD fell 1.84 percent to $5.34 yesterday.

The stock rose 43 percent this month as investors prepared for the publication of data on Linjeta at the European Association for the Study of Diabetes in Stockholm yesterday. The Food and Drug Administration is expected to rule on the medicine by Oct. 30.

The strangle trade will also benefit from implied volatility in the stock falling, which will depress the value of the options sold short. Implied volatility in the name is now about 150 percent, down from 209 percent in August.

Implied volatility often falls after major events such as FDA decisions, so yesterday's option trade is apparently looking for the same outcome.

The transaction pushed total options volume in BIOD to 9 times greater than average.

(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: BIOD

optionMONSTER

optionMONSTER

More from optionMONSTER:

Related Videos

Stocks

Referenced

100%

Most Active by Volume

72,157,294
  • $61.36 ▼ 2.65%
56,535,455
  • $34.92 ▼ 3.78%
49,608,479
  • $4.42 ▼ 3.07%
49,328,445
  • $25.91 ▼ 3.18%
48,932,529
  • $16.37 ▲ 0.49%
38,182,422
  • $3.17 ▼ 1.55%
33,297,581
  • $73.86 ▲ 1.37%
32,790,375
  • $47.43 ▼ 1.02%
As of 4/23/2014, 04:07 PM