Markets

Calls look to ride Arena Pharma

Arena Pharmaceuticals surged on patent news yesterday, and traders apparently believe that it will keep moving higher.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 2,000 October 5 calls for $0.60. Volume was more than 10 times previous open interest at the strike, an indication that new money was put to work.

Long calls lock in the price where investors can buy a stock, allowing them to profit from a rally while risking only a fraction of the amount needed to purchase shares directly. The cheap cost can also generate significant leverage on a percentage basis. (See our Education section)

ARNA rose 3.9 percent to $4.53 yesterday after the federal government granted an additional patent on the company's Belviq weight-loss drug, effective through 2033. Arena has mostly lagged expectations and bled lower for years as investors have waited for its products to gain traction in a potentially huge market for obesity treatments.

Total option volume in the name was triple average amounts in the session, with overall calls outnumbering puts by a bullish 36-to-1 ratio.

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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