One investor is using an unusual strategy to get long Questcor
optionMONSTER's Heat Seeker tracking system detected the purchase
of 2,581 July 42 calls for $3.80 and the sale of 3,872 July 50
calls for $1.45. Volume was more than triple open interest at both
The trade resulted in a cost of about $419,000, or $1.62 per call
contract purchased. It will earn a maximum profit of 394 percent if
QCOR closes at $50 on expiration--about $4 more than the stock's
all-time high. Gains will erode above $50 and eventually turn to
losses because of the greater number of calls sold short.
The strategy is a variation of a
, where more contracts are sold further from the money than are
closer to the money
. That increases leverage because it reduces cost, but it also
creates the possibility of loss if the stock moves too far in the
intended direction. (See our
QCOR is up 1 percent to $38.29 in midday trading. The drug maker
has almost tripled in the last year, riding a wave of strong demand
for its Acthar drug, which is used to treat ailments including
multiple sclerosis, infantile spasms, and nephritic syndrome.
It has beaten estimates at least the last three times it reported
earnings. The stock recently pulled back to its 200-day moving
average, but shares have rebounded and are now attempting to
Overall option volume is slightly above average, with calls
outnumbering puts by 8 to 1, according to the Heat Seeker.