Options Trading News

October 4, 2012  Thu 10:13 AM CT

Sarepta Therapeutics tripled yesterday, and traders anticipate another 50 percent of upside.

optionMONSTER's Heat Seeker monitoring system detected the purchase of about 2,300 November 40 calls for an average premium of about $8. A similar number of November 60 calls were sold at the same time for roughly $1.15. Volume was more than 5 times open interest at each strike, indicating that new money was being put to work.

SRPT is down 9.37 percent to $40.72 in morning trading. It leapt from under $15 to almost $45 yesterday after reporting positive early-stage drug trial data for its compound to treat Duchenne muscular dystrophy, an incurable disease affecting about one of every 3,600 boys.

Given how much it has moved, some traders might be nervous buying the shares. Today's strategy addresses that worry by reducing the amount of capital at work.

The trader paid roughly $6.85, less than one-fifth the price of the stock, and now has the right to collect $20 if it rallies to $60. That would represent a profit of some 192 percent.

Known as a bullish call spread, the trade is a common method for generating leverage and managing risk. (See our Education section)

Overall option volume in SRPT is 6 times greater than average so far today, according to the Heat Seeker.
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Sarepta draws bullish call spread

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The drug maker broke out of a monthlong range yesterday after reporting positive data from trials of its treatment for Duchenne muscular dystrophy.


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