How one big trader is hedging Isis
David Russell | [email protected]
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.