Sellers lay into Somaxon rally

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Somaxon Pharmaceuticals exploded higher after announcing a collaboration with Procter & Gamble, but option traders took the other side of the move.

The heavily shorted microcap surged higher by as much as 63 percent after announcing that the consumer-products giant would help distribute the insomnia drug Silenor starting next month. The product is estimated to have annual sales potential of $232 million by 2014, according to Reuters.

SOMX SOMX, whose market cap is only $152 million, ended the session up 29 percent at $4.34. Short interest represented 20 percent of the float in mid-July, so forced buying probably contributed to the pop.

Call selling accounted for the bulk of the options activity, with the February 7.50 contracts changing hands 12,226 times. Most of the large blocks priced for $0.50 to $0.55 and occurred after the stock pushed over $5, a level it hadn't breeched since late June. Activity in the strike was 62 times greater than open interest.

The September 45 calls were also heavily sold for $0.35 to $0.45. Volume climbed to 5,535 contracts versus open interest of just 353.

Yesterday's rally drove SOMX back to the level where it traded in March, immediately before regulatory approval of Silenor sent the shares rocketing toward $10.

Overall options volume in the name was 177 times greater than average in the session.

(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.

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This article appears in: Investing , Options

Referenced Stocks: PG , SOMX

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