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Strategy is tailored for Biodel results

By: optionMONSTER
Posted: 4/8/2013 3:06:00 AM
Referenced Stocks: BIOD

Biodel has major clinical data due later this year, and one investor tailored a strategy in hopes of good news.

optionMONSTER's tracking systems detected the purchase of 4,000 September 4 calls for $0.50 and the sale of an equal number of May 3 puts for $0.50. Volume exceeded the previous open interest at each strike, indicating that new positions were initiated.

This spread is unusual because BIOD closed Friday unchanged at $2.65, leaving those puts in the money . It also turns some heads because the strategy uses different expiration months, but it makes sense considering the timing.

BIOD has enrolled patients in a Phase II study of its BIOD-123 compound for the treatment of diabetes and expects results by the end of the third quarter. Owning the September calls will provide exposure to a rally if the data is positive.

The trader paid for the contacts by selling the May 3 puts, resulting in no net cost. But because of these short puts , he or she also faces the possibility of being forced to buy shares if they remain below $3 on May expiration six weeks from now. (See our Education section)

Total option volume in Biodel was 14 times greater than average in the session.