Options Trading News

December 31, 2012  Mon 11:20 AM CT

Dynavax Technologies plunged last month, and one investor is positioned for further bloodletting.

optionMONSTER's Depth Charge tracking program detected the purchase of about 2,100 January 2.50 puts for $0.15 against open interest of 1,458 contracts. The trade dominated activity in the drug developer, which normally sees volume of only about 440 calls and puts in a single session.

The investor now has the right to sell DVAX shares for $2.50 on expiration three weeks from now, no matter how far they decline. He or she stands to earn leveraged profits in the event of a continued decline but will lose their $0.15 if the stock doesn't drop. (See our Education section for more on put buying)

DVAX is unchanged at $2.74 in early afternoon trading. It peaked around $5 several times in recent months but gapped sharply lower on Nov. 16 after a Food and Drug Administration advisory panel voted against approval of the company's Heplisav hepatitis B vaccine. Shares traded as low as $2.22 after that event, so today's put buyer could be looking for the stock to retest that level.

Puts outnumber calls by a bearish 23-to-1 ratio so far today, according to the Depth Charge.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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