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February 14, 2013  Thu 9:52 AM CT

DVAX: SEE CHART GET CHAIN FIND STRATEGIES
One investor is looking for Dynavax Technologies to come back from a brutal selloff last year.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 2,000 July 4 calls for $0.75 and the sale of an equal number of March 6 calls for $0.12. Volume was below open interest in the 6s, so there are two possible explanations of the activity.

One is that an existing position was rolled down in price and further out in time. That gives the investor a greater chance to profit, but for an additional cost of $0.63.

The more likely possibility is that both trades were opened as part of a bullish diagonal spread. In that case, the investor has locked in a purchase price of $4 through the summer while agreeing to sell the stock for $6 if it goes above that level during the next month.

In this case, should DVAX remain below $6 through March expiration, the trader can sell more calls at the higher strike to further reduce the cost basis. (See our Education section for more on how options can be used to manage trades.)

DVAX is down 0.25 percent to $3.21 in morning trading. It lost almost half its value on Nov. 16 after a Food and Drug Administration advisory panel voted against approval of its Heplisav hepatitis B vaccine. Since that drop, however, the shares have been trying to rebound.

Total option volume is twice the daily average so far in the session, with calls outnumbering puts by 51 to 1.
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Education & Strategy

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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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