Flamel Technologies continues to see high option premiums, and
one investor is exploiting the volatility to earn income.
optionMONSTER's tracking systems detected the purchase of 8,713
March 2.50 calls for $3.75 against existing open interest and the
sale of a new block of 8,713 June 2.50 calls for $3.84. The
transaction appears to be the roll of a position that Chris wrote
about last month.
FLML fell 0.32 percent to $6.25 in early afternoon trading and has
spent the last nine months trading between $6 and $8. Options on
the French drug-delivery company have always fetched rich premiums,
reflected in the fact that implied volatility is around 75 percent
versus historical volatility in the 45-50 percent range.
The calls were probably rolled by an investor who owns the stock
and is using the options to generate an income stream. Today's
trade resulted in a credit of $0.09. If they continue the strategy
for a year, it would translate into a yield of about 17 percent.
The only risk is that FLML will drop below the 2.50 strike price,
but they also won't benefit from upside in the stock.
Overall option volume in the name is 34 times greater than average
so far today.