Markets

Bulls target Jazz before FDA ruling

One trader is looking for a pop in Jazz Pharmaceuticals ahead of a big regulatory ruling the company is facing by Monday.

optionMONSTER's Heat Seeker tracking system detected a three-way strategy that will simulate ownership in the drug developer. About 4,700 October 10 calls were purchased for $1.08, matched against the sale of roughly 5,800 October 10 puts for $0.58 and some 1,300 October 9 puts for $0.25. Volume was at least twice open interest in all three strikes.

JAZZ

Selling the downside puts let the investor lower his or her cost basis in the calls to about $0.29 per contract. That will provide significant leverage on any push to the upside, while exposing them to losses if JAZZ drops below $10.

The stock fell 3.84 percent to $10.51 yesterday. It gapped lower on Aug. 23 after a Food and Drug Administration advisory committee voted 20-2 against the approval of JPZ-6 for the treatment of the joint-pain condition known as fibromyalgia.

Since then, investors have apparently come to think that the medicine will be approved, sending JAZZ up 32 percent. The FDA panel apparently determined that the drug was safe and effective but had concerns that it resembled GHB, which is associated with abuse as a date-rape agent.

The final decision on JPZ-6, also known as Xyrem, is expected on Oct. 11.

The bullish trade on JAZZ pushed overall option volume in the name to 13 times greater than average yesterday, according to the Heat Seeker.

(Chart courtesy of tradeMONSTER)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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