Vivus has gotten cut down, and now one investor is looking for a
optionMONSTER's Heat Seeker monitoring program detected the
purchase of 1,000 June 12 calls for $2.17 and the sale of an equal
number of June 17 calls for $1. Volume is more than twice open
interest at both strikes, indicating that new positions were
The strategy is known as a
because twice as many contracts were sold as the number bought.
That generates additional income, thereby lowering the cost and
increasing leverage, but it also creates the risk of losing money
if the shares move too far in the intended direction.
Today's position, for instance, cost just $0.17 to open and will
earn a profit of 2,841 percent if the drug maker closes at $17 on
expiration. Because of the bigger position in the short calls,
gains will erode above that level and turn to losses over $22. (See
VVUS is up 5.08 percent to $10.76 in afternoon trading. The
developer of weight-loss drugs more than quadrupled between August
2011 and July 2012 but then rolled over and has fallen by more than
half. That selloff brought the stock back to the same $10 level
that marked a top in recent years, which could be leading some
traders to believe that it will now become support.
Calls outnumber puts in VVUS by a bullish 2-to-1 ratio so far
today, according to the Heat Seeker.
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