Stock substitution United Therapeutics

By David Russell,

Shutterstock photo

United Therapeutics has been rallying for the last month, and one investor still likes the name.

optionMONSTER's Heat Seeker tracking system detected the purchase of about 5,700 May 57.50 calls, most of which priced for $2.85 and the sale of a matching number of May 47.50 puts for $2.05. Volume was more than 40 times open interest at both strikes.

The position cost about $0.80 and is similar to owning shares in the drug developer. If the stock continues to climb, the long calls will appreciate and the puts sold short will lose value--thereby inflating the value of the position--while the opposite will happen in the event of a drop. Unlike owning shares, however, the option strategy will track UTHR less closely as time progresses and expire worthless if it remains between the two strike prices on expiration. (See our Education section)

UTHR rose 0.04 percent to $53.51 in late morning trading. It peaked at a 52-week high of $59 in October, then plunged late in the month after the Food and Drug Administration rejected an oral version of its Remodulin hypertension drug. The shares have been working their way higher since that selloff.

The bullish trade pushed total option volume in UTHR to 21 times greater than average so far today.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: UTHR

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