Options Trading News

July 25, 2013  Thu 2:45 AM CT

A large trader is hedging a bet in Isis Pharmaceuticals following a blistering rally so far this year.

optionMONSTER's Depth Charge monitoring system detected the purchase of 3,070 September 28 puts for $2.71. Equal-sized blocks were sold in the September 25 puts for $1.30 and the September 34 calls for $1.06. Volume was more than 5 times the previous open interest at all three strikes, indicating that new positions were initiated.

The trade cost $0.35 and will earn a maximum profit of 757 percent if the drug maker closes at or below $25 on expiration. It also forces the investor to sell shares if they go over $34, which suggests he or she owns the stock and is using the strategy for protection. The strategy combines elements of a collar with a vertical spread. (See our Education section for other hedging techniques.)

ISIS fell 2.09 percent to $28.51 yesterday but has almost tripled since the start of January. Most of that move came after regulators approved its Kynamro cholesterol drug. The company also reported strong earnings in February and gapped higher in June on strong Phase II data of another compound.

Total option volume was 6 times greater than average in the session, according to the Depth Charge.
Share this article with your friends



The fastest money in the market
View full report »

Premium Services

Archived Webinar

Education & Strategy

Options Academy: More on the Covered Call Strategy

Last week, we talked about the Covered Call and the misconceptions that surround it. We spoke about how an investor must realize that the Covered Call is actually a premium collection strategy and not so much a directional one. If an investor can grasp this idea, the investor stands to do a heck of a lot better in the strategy than they currently do.

View more education articles »