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Trader sees Questcor hitting a top

By: optionMONSTER
Posted: 5/4/2010 2:03:00 AM
Referenced Stocks: QCOR

Questcor Pharmaceuticals has doubled in two months, and one trader apparently thinks that it's reached a top.

optionMONSTER's tracking systems detected heavy selling of the May 10 calls, which changed hands more than 11,000 times against open interest of 1,099 contracts. Most of the volume priced for $0.55 to $0.70.

QCOR Chart QCOR fell 5.02 percent to $9.28 yesterday, with most of the downside occurring as the options traded. Premiums fell by about $0.15 even as the stock declined by a few cents, which reflects the selling pressure on the calls.

The option activity occurred one session after the drug company reached to a new all-time high of $9.98, the zenith of a rally that began with the company's fourth-quarter earnings report on March 2. It isn't immediately clear why QCOR has been climbing so aggressively, as its results don't appear to have exceeded forecasts.

The call selling reflects an expectation that the drug maker will consolidate or pull back over the next three weeks. Selling options at this point in the expiration cycle will let the trader profit from the accelerating pace of time decay that will take place as May 21 approaches. (See our Education section)

Overall options volume in QCOR was 25 times greater than average in the session.

(Chart courtesy of tradeMONSTER)