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.
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
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)