Questcor Pharmaceuticals ripped higher on strong revenue this
week, and one trader is calling the top.
optionMONSTER's monitoring systems detected the sale of 5,000
September 12.50 calls, mostly for $0.45, against open interest of
36 contracts. The trade pushed total options volume in the
high-flying drug maker to 13 times greater than average.
QCOR is up 2.22 percent to $11.50 in early afternoon trading and
has risen more than 140 percent this year. The stock has been
exploding higher on strong growth of its Acthar multiple sclerosis
drug. Wednesday afternoon it reported second-quarter revenue of
28.3 million, beating the $27.50 million estimate.
Earnings missed analyst forecasts, but that apparently resulted
from higher sales-force costs--a development investors are likely
to forgive in a company expected to grow revenue 29 percent this
year. The stock popped 24 percent the next day.
QCOR is now halting its advance around the same $11.60 level where
it peaked in June. Some trades may now view that price area as
resistance and expect the shares to advance only slightly or head
lower in the near term.
Selling calls allows shareholders to earn income from that
expectation. If the stock rallies past $12.50, they would have to
sell the shares for that price. However, when you count the premium
earned from selling the calls, their exit price would really be
If QCOR does pull back, they would simply keep the premium and use
it to reduce their cost basis. The strategy is one of the most
common uses of options as a portfolio-management tool. (See our
The trade also let the investor exploit the stock's rich implied
volatility, which is now about 55 percent--higher than realized
volatility has been in the name for the last several months.
(Chart courtesy of tradeMONSTER)
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