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Hedging Ironwood before ruling

By: optionMONSTER
Posted: 8/28/2012 5:32:00 AM
Referenced Stocks: IRWD

One investor is hedging a position in Ironwood Pharmaceuticals before a regulatory ruling next month.

optionMONSTER's Depth Charge monitoring system detected the purchase of 1,200 September 10 puts for $0.60 and the sale of an equal number of September 15 calls for $0.45. Volume exceeded open interest at both strikes, indicating that a new position was opened.

The trade cost $0.15 and will make money if the drug developer drops toward $10 in the near term. It also obligates the investor to sell shares for $15 if they go that high, so he or she is probably owns the shares.

IRWD rose 1.68 percent to $12.71 yesterday, and has been fluctuating in a range for the last year. The Food & Drug Administration is expected to approve or reject the company's linaclotide intestinal drug in September. The decision could significantly move the stock, which explains why investors are seeking protection.

The trade pushed overall option volume in the name to 23 times greater than average.