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Biodel draws two bearish positions

By: optionMONSTER
Posted: 10/8/2010 2:05:00 AM
Referenced Stocks: BIOD

Biodel is pulling back after a big move, and traders are positioning for further downside.

optionMONSTER's Depth Charge tracking system detected two separate bearish trades on the drug developer, which had surged more than 60 percent in the first three weeks of September.

BIOD In the first, 10,000 March 7.50 calls were sold for $1 and an equal number of March 2.50 puts were bought for $0.65. The trade earned a credit of $0.35 and will make additional profits if BIOD falls below $2.50.

The trade may have been implemented as a collar strategy by a shareholder who wanted to protect against a decline in the shares but was also willing to accept a $7.85 exit price on the stock.

The shares have been fluctuating mostly between $3.50 and $5.50 for almost two years, and they closed down 5.66 percent to $4.50 yesterday. BIOD surged last month on optimism about its Linjeta insulin product, and the collar trade likely resulted from hedging before a decision expected from U.S. regulators by Oct. 30. (See our Education section)

The second trade consisted of the sale of 2,000 November 5 calls for $1.15 and the purchase of 2,000 November 5 puts for $1.75. The position cost $0.60 and will simulate a short position in the stock, making money on a push below $4.60.

Overall option volume in BIOD was more than 6 times greater than average yesterday. The name also saw a large strangle sold last month as an investor bet it would remain trapped in a range.

(Chart courtesy of tradeMONSTER)