Star Scientific popped to a new high yesterday, but one trader is looking for a drop.
optionMONSTER's Depth Charge tracking system detected the sale of 2,000 June 4 puts for $0.10 and the purchase of 3,000 July 4 puts for $0.425. Volume was below open interest in the front month but not July, which indicates that an existing position was rolled from one contract to the other.
The trade is bearish because more puts are now owned. The July contracts will also appreciate more quickly if CIGX drops because they're more sensitive to changes in implied volatility. The June puts, in contrast, will lose value at an accelerating pace and track the share price less closely as expiration approaches on June 17. (See our Education section)
CIGX rose 5.04 percent to $5.21 yesterday. It has more than doubled since early March, when call buyers became active in the name.
While the company officially describes itself as a developer of low-nicotine tobacco products, investors have speculated that it may have discovered a potential treatment for Alzheimer's disease. The chemical in question--known as RCP-006, or anatabine--occurs naturally in tobacco and is the subject of a clinical trial by the Roskamp Institute.
Given the stock's big move since February, plus the fact that it's sitting at its highest price since June 2009, some traders may believe that it's due for a pullback and look to profit from a drop by owning puts.
Overall option volume in CIGX was triple the daily average in the session.
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