Human Genome has fought its way back to a key level, and one
trader thinks it's dead in the water.
optionMONSTER's tracking systems detected the sale of about 5,000
September 29 puts for $0.55 and a matching number of September 31
calls for $0.50, resulting in a net credit of $1.05. Volume was
more than 3 times open interest in both strikes.
HGSI rose 0.96 percent to $29.84 in afternoon trading and is up
13 percent in the last month. It now is halting at the same area
where it gapped lower on April 20.
The drug developer has been pushing higher amid hopes for its
strong pipeline of drugs including Benlysta, a potentially
blockbuster lupus treatment, as Guy has discussed.
Speculation has also centered on the stock as a potential
takeover target at the hands of GlaxoSmithKline, which is
co-developing Benlysta. The Food & Drug Administration said on
Aug. 19 it will fast track reviewing the medicine. A ruling is
expected by mid-December.
Today's option trader apparently thinks HGSI will move sideways
as investors await the news. Selling calls and puts lets them
collect premium as time passes, letting each day eat away the value
of the options they sold short.
The strategy, known as a short strangle, will make money as long
as the stock remains between about $28 and $32. It also benefits
from the HGSI's 76 percent implied volatility, which is
considerably higher than real volatility in recent months.
High implied volatility inflates the value of options. See our
Education Section for more.
Overall options volume in the stock is more than twice the average
level so far today.
(Chart courtesy of tradeMONSTER)
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