Calendar spread takes aim at Affymax
David Russell | firstname.lastname@example.org
optionMONSTER's Depth Charge monitoring system detected the purchase of 5,000 August 13 puts for $1.35 to $1.40 and the sale of an equal number of July 13 puts for $0.75. Volume was more than 4 times open interest at both strikes, indicating that new positions were opened.
The investor paid about $0.60 to open the position and will profit from the drug developer moving sideways in the next month. If that proves correct, the July puts sold short will become worthless and the value of the spread will expand. (See our Education section)
AFFY rose 0.08 percent to $13.11 yesterday. A Food and Drug Administration panel backed approval of its Omontys anemia drug in December, causing the stock to more than double in the next 3-1/2 months. Shares have done little since official marketing permission was granted on March 27.
Calendar spreads often occur on range-bound stocks such as AFFY. It can be profitable even if the shares fall slightly. For instance, if it closes below $13 on July 20, he or she will be assigned shares, but with protection in place thanks to the August contracts.
Overall option volume was 19 times greater than average in the session.