How trader is using puts to buy Avanir
Avanir has pulled back after rallying, and one investor wants
to get long.
Instead of buying shares, however, the trader is writing puts. optionMONSTER's tracking systems detected a transaction in the June 3 contracts, with a block of 5,000 trading for $0.45. That was the asking price at the time, which indicates that they were sold.
AVNR is down 2.73 percent to $2.85 in morning trading but is up more than 40 percent in the last two months. The company's revenue is expected to double next year as sales increase for its Neudexta neurological drug.
The strike price of the puts is below the current price of the shares, meaning that options are at the money . If AVNR rallies above $3, the trader will keep the premium and the contracts will expire worthless. Otherwise, he or she will have to buy stock for $3 but, including the income from the put sale, the effective entry price would be $2.55.
allows them to
manage an entry price
into the stock and eliminates the need to time a purchase. It
also lets traders make some money if AVNR runs away from them.
by Chris McKhann)
The trade pushed overall volume in the stock to 6 times greater than average so far today.