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November 29, 2012  Thu 3:47 AM CT

MDVN: SEE CHART GET CHAIN FIND STRATEGIES
Two cancer-drug developers have made giant moves, and an investor is apparently hedging positions in both.

optionMONSTER's Depth Charge monitoring program detected protective trades in Medivation and ONYX Pharmaceuticals at almost the same time yesterday. They were remarkably similar in structure as well, suggesting a single player was behind the activity.

In ONXX, they purchased 2,000 December 72.50 puts for $2.20 and sold 2,000 December 85 calls for $0.25. Seconds later, 2,000 December 46 MDVN puts were bought for $1.50 and 2,000 December 57.50 calls were sold for $0.10. The ONXX trade resulted in a debit of $1.95, while the MDVN transaction cost $1.40. Volume exceeded open interest at all four strikes.

The investor has now locked in minimum selling prices of $72.50 for ONXX and $46 for MDVN. The trader has also agreed to sell the shares if they go to $85 and $57.50, respectively. (The strategy is known as a collar.)

ONXX rose 1.13 percent to $76.06, while MDVN climbed 2.38 percent to $49.96. Both stocks are up more than 70 percent so far this year but have been skidding in the last two months.

Total option volume was triple the daily average in ONXX and 5 times greater than average in MDVN, according to the Depth Charge.
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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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