MELA Sciences draws big put selling

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MELA Sciences is back to levels from late 2008, and some investors think the bottom is in.


optionMONSTER's tracking systems detected the sale of 5,400 January 2.50 puts for $0.60
against open interest of just 38 contracts. The trade reflects a belief that the maker cancer-detection instruments will hold its current levels or push higher through early 2011.

Given the premium already earned, however, the transaction will make money as long as MELA stays above $1.90 through expiration. Selling puts is a common strategy when investors like a stock but don't necessarily want to spend money buying shares.

The stock fell 6.04 percent to $2.49 yesterday. The company has lost one-third of its value in the last three months as regulators have found fault with its MelaFind melanoma device.

In May the company filed a petition contending that the Food and Drug Administration was violating its own standards. Shares also rallied on July 20 as members of Congress critically examined the FDA's treatment of the company.

With no revenue, MELA has shrunk to the level of a micro-cap with a market value of just $62 million. If it weren't for cash reserves, it would be less than $40 million.

About 1,000 January 3 puts were also sold for $1 yesterday. Overall option volume in the session was 11 times greater than average.



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: MELA

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