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Volatility sellers target Exact Sciences
9/10/2010 8:34:00 AM
Micro-cap diagnostics company Exact Sciences ripped higher on a recommendation from Jefferies, and option traders looked to earn premium.
Our tracking systems detected the sale of 2,575 October 5 puts for $0.30 and 1,500 January 5 puts for $1. Volume was more than 7 times open interest in both strikes.
There was also selling in the October 5 and January 7.50 calls.
EXAS surged 9.25 percent to $5.52 yesterday and at one point traded up as much as 17 percent. The rally came after Jefferies upgraded the stock to buy on the expectation its non-invasive test for colorectal cancer will have positive test results.
The company plans to issue clinical data at the American Association of Cancer Research meeting on Oct. 29.
As is typical before such key events, implied volatility is extremely high in EXAS at about 112 percent. That's twice as much as the stock has moved over the last 50 days, according to optionMONSTER data.
Selling options is a common strategy used to bet that implied volatility is too high and has the advantage of letting the investor collect premium from the shares simply holding their ground, instead of requiring that they rise or fall a certain amount. Avanir Pharmaceuticals, which is expecting a big ruling from the Food and Drug Administration next month, also saw heavy volatility selling last week.
Overall option volume in EXAS was 23 times greater than average in yesterday's session.
(Chart courtesy of tradeMONSTER)