Range-bound trade on InterMune

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InterMune spiked last week on positive news about one of its drugs, and now volatility sellers are coming out of the woodwork.

ITMN optionMONSTER's tracking systems detected the sale of more than 10,000 April 15 contracts for $0.45 to $0.55 against open interest of 4,886 yesterday. There was also heavy selling in the January 35 calls, helping to push total option volume in the stock to 14 times greater than average in the session.

ITMN rose 2.64 to $35.81 yesterday. It more than doubled on Friday after a European panel recommended approving the company's Esbriet drug for the treatment of lung disease. The decision removed considerable uncertainty about InterMune, which lost about three-quarters of its value in May following a rejection by U.S. regulators.

Yesterday's option action reflects a belief that the stock will now likely remain in a range. Such trades are common after clarity about a company's future improves, which causes implied volatility--and thus option premiums--to drop. (See our Education section)

In the case of the puts, ITMN would have to lose more than half its value by expiration for the investor to lose money. The trading in the January 35 calls was also noteworthy because they priced for $3.40 to $4.40, indicating that investors don't expect ITMN to climb past about $38 or $39 in the next five weeks.

(Chart courtesy of tradeMONSTER)

 



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This article appears in: Investing , Options

Referenced Stocks: ITMN

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