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September 26, 2013  Thu 3:16 AM CT

DYAX: SEE CHART GET CHAIN FIND STRATEGIES
Dyax rarely sees much option activity, but yesterday one trader made a large bet that the biopharmaceutical firm will rally hard by next spring.

optionMONSTER's Heat Seeker system detected the purchase of 5,000 May 10 calls in less than 2 minutes, led by a single print of 4,728 that went for $0.55. This is a new position, as there was no open interest in the strike before the trade appeared.

These long calls lock in the price where traders can buy the stock for the next eight months no matter how far it might rise. They could be sold earlier at a profit if premiums rise with a rally before then, but the contracts will expire worthless if shares remain below $10 through mid-May 2014. (See our Education section)

DYAX finished yesterday unchanged at $6.06. The drug developer broke out of an extremely tight range in late August and has been climbing ever since.

Leerink Swann raised its price target on Dyax to $7 from $5 last week. The company, a favorite among some hedge funds, focuses on the treatment of inflammatory diseases.

Yesterday's call buying made up almost all of the option volume in DYAX, which was 73 times its daily average for the last month. Overall calls outnumbered puts by a bullish 21-to-1 ratio.
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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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