Targacept has been falling hard, and now the bulls are looking for a major rebound.
optionMONSTER's Heat Seeker monitoring program detected the purchase of about 1,100 November 17.50 calls for $4.30 and the sale of an equal number of November 30 calls for about $1. Volume was below open interest in the higher-strike contracts, so there are two possible interpretations for the trade.
The first is that an existing long position in the November 30s was rolled lower, increasing the investor's leverage to upside in the drug-development stock. The second possibility is that a new bullish call spread was opened at a cost of $3.30, with the potential to earn a profit of 279 percent if TRGT closes at or above $30 on expiration. (See our Education section)
The stock briefly traded at that level in late winter, but fell hard and proceeded to lose about half its value through earlier this month. Yesterday it broke above its 50-day moving average for the first time since March and closed up 8.04 percent to $17.34.
Shares attempted to rally in May after management issued strong revenue guidance. The company focuses on developing neurological drugs that target the neuronal nicotinic receptor, potentially offering treatments for conditions such as Alzheimer's disease, schizophrenia, and hyperactivity.
Overall option volume was 11 times greater than average yesterday, according to the Heat Seeker, with calls outnumbering puts by 7 to 1.
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