Range-bound trade on Human Genome

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Human Genome has fought its way back to a key level, and one trader thinks it's dead in the water.

HGSI 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)



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: GSK , HGSI

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