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Trader bets Avanir will hold ground

By: optionMONSTER
Posted: 6/3/2010 11:50:00 AM
Referenced Stocks: AVNR

Avanir Pharmaceuticals is rebounding from a key support level, and one investor is confident that the stock will hold its ground.

optionMONSTER's tracking systems detected the sale of 2,500 July 2.50 puts, most of which priced for $0.25. The transaction accounted for almost all the activity in the micro-cap drug developer.

AVNR Chart AVNR rose 4.76 percent to $2.64 in morning trading but is down 16 percent in the last month. The stock had ripped as high as $3.45 in early May but then declined to the $2.35 area that had presented resistance last year. The level also corresponds to AVNR's 100-day moving average (purple line on chart).

The company's fortunes are tied to Zenvia, a Phase III drug candidate to treat Pseudobulbar Affect, a neurological disorder that doesn't have any competing treatments. AVNR started rallying in late March before it made presentations on the drug, which is expected to be approved or rejected by the Food and Drug Administration by Oct. 30.

Selling puts allows the investor to reap income from the stock's rich 130 percent implied volatility. The transaction obligates him or her to buy the shares for $2.50 if they fall below that level, so it reflects a belief that the potential downside is limited.

Overall options volume in the stock is 15 times greater than average so far today.

(Chart courtesy of tradeMONSTER)