Options Trading News

January 17, 2014  Fri 12:20 PM CT

Medivation has run hard, and one big investor apparently thinks that it's just getting started.

optionMONSTER's Heat Seeker monitoring system detected a surge of unusual activity in the drug developer, which is already up 25 percent in the last month. Blocks of 1,000 February 65 calls and 2,500 February 70 calls were sold for $12.65 and $8.75 respectively. Volume was below the previous open interest in both strikes, so it appears that existing positions were closed.

Around the same time, the trader bought 5,500 February 77.50 calls for $4.90 and sold an equal number of February 90 calls for $0.90. He or she also sold 2,500 February 70 puts for $2.55. All three of those trades surpassed previous open interest, indicating that new positions were initiated.

The investor was apparently sitting on huge profits in the 65s and 70s after MDVN's recent run. Exiting those positions freed up capital, some of which was spent on a complex bullish trade in the other three strikes.

Making the adjustment brought in a net $1.89 million, and the trader now stands to collect an additional $6.875 million if the shares close at $90 or higher at expiration in five weeks. There's also downside risk because of the sold puts. (See our Education section)

MDVN is down 1.21 percent to $76.22 in afternoon trading and has been on a tear since getting flagged on our proprietary Market Action webinar on Oct. 22. It initially bounced from its 200-day moving average and reported strong earnings on Nov. 12 thanks to sales of its XTANDI drug.

The shares then consolidated at record levels and slowly worked higher before exploding off their 50-day moving average early this month. Based on today's activity, at least one big investor is betting that considerable upside remains in the next five weeks.

Management hasn't yet announced the date of its next earnings release, but last year's calendar suggests that it will occur before expiration in mid-February.

Total option volume is 12 times greater than average so far today, according to the Heat Seeker.

Disclosure: I own MDVN shares.
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