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October 2, 2013  Wed 4:45 AM CT

MNTA: SEE CHART GET CHAIN FIND STRATEGIES
One investor is getting long Momenta Pharmaceuticals months after the drug maker won a key patent case.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 2,180 March 17 calls for $1.45 and the sale of an equal number of March 12 puts for $0.45 yesterday. Volume was more than 20 times open interest at each strike, indicating that new positions were initiated.

Selling puts generates income and obligates the investor to buy shares if they decline, while owning calls locks in the price where the stock can be purchased. Both strategies will profit from a rally and will lose money from a drop. Combining them results in a position similar to owning shares, but at a much lower cost.

MNTA gained 4.31 percent to $15.01 yesterday. It rallied in July after a court overturned Teva Pharmaceutical's patent on the multiple-sclerosis drug Copaxone but has been pulling back since. Momenta wants to introduce a generic version of the product as early as May 2014.

Yesterday's option strategy cost $1 and locks in a purchase price of $18 for the shares through early next year. That's the same price where MNTA peaked after the court ruling, so the strategy ensures that the investor won't miss a rally above that level.

The move is unusual because the trader sold shorter-dated puts, which reduces risk over the longer term. (See our Education section for more ways that options can be combined to match your trading objectives.)

More than 6,200 contracts changed hands in the session, according to the Heat Seeker. It was almost 25 times the average amount.
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Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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