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Biotech investor seeks exit strategy

By: optionMONSTER
Posted: 3/31/2014 3:22:00 AM
Referenced Stocks: IBB

One biotech investor wants to take the money and run.

optionMONSTER's Heat Seeker monitoring program detected heavy call volume in the iShares Nasdaq Biotechnology exchange-traded fund, which focuses on industry heavyweights such as Biogen, Gilead Sciences, and Amgen.

Some 10,000 April 245 calls traded for $1.60, along with 5,000 of the April 230s for $7.20. Volume was more than 9 times open interest at both strikes, indicating that new positions were initiated.

The transaction was probably a ratio spread, with the 230s bought and the 245s sold for a net cost of $4. The investor will collect $15 a share, or $7.5 million, if IBB closes at $245 at expiration and leave the investor short above that level.

He or she probably owns the fund and is using the strategy to manage an exit now that it's dropping. This way they can leverage a small rebound and lower their breakeven. See our Education section for more managing entries and exits with options.

IBB fell 2.86 percent to $229.38 on Friday. It's down 13 percent in the last month while the S&P 500 is little changed. That marks a big change from the last two years, when it outperformed the broader market by a wide margin. Emerging markets, the former laggards, have been rallying at the same time, indicating that a big sentiment shift is underway.

Overall option volume in IBB was quadruple the daily average, with calls accounting for 82 percent of the total.