Volatility seller is targeting Neoprobe

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Option premiums are rich in Neoprobe, and one trader is squeezing income from the trend.

Our monitoring systems detected the sale of 5,000 April 3 calls for $0.30 and $0.35 against open interest of just 112 contracts. Overall option volume in the maker of cancer products was 11 times greater than average.

The implied volatility in those contracts was about 62 percent, higher than most other contracts in the April expiration month. This suggests that option prices are relatively high, which could be encouraging some traders to sell them.

They probably own shares and are selling the calls as part of a strategy designed to earn income from the passage of time . Investors often sell calls and puts on small medical-research companies because their propensity to move keeps volatility high. (See our Education section)

NEOP fell 1.07 percent to $2.77 yesterday. Based on the premium earned, the investor is now protected more than 10 percent to the downside and has the opportunity to make more than 20 percent to the upside if shares push higher.



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.

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


This article appears in: Investing , Options

Referenced Stocks: NEOP

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