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July 12, 2013  Fri 3:16 AM CT

MAKO: SEE CHART GET CHAIN FIND STRATEGIES
A long-term trade in Mako Pharmaceuticals is looking for shares to run back to highs.

optionMONSTER systems show that 8,695 MAKO options changed hands yesterday, more than 10 times its daily average over the last month. Almost all of that was in a January 2015 call spread.

A trader bought 4,000 of the 17.50 calls for $1.65 and sold 4,000 of the 30 calls for $0.35. Volume was above the previous open interest at each strike, so this is new positioning.

The trader spends $1.30 on this vertical spread to get the exposure up to $30. The maximum gain if shares are at or above that level is $11.20. The delta of the higher-strike calls suggests a 13 percent probability that MAKO will be above that price at expiration. (See our Education section)

The stock rose 1.98 percent yesterday to close at $11.84. That is around the middle of its recent trading range, as shares have been trending up from a low of $10 in April. Shares were above $30 last May.
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Education & Strategy

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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