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December 11, 2012  Tue 9:47 AM CT

MDVN: SEE CHART GET CHAIN FIND STRATEGIES
Biopharmaceutical company Medivation isn't participating in the broad market rally today, but one large option trade is bullish.

More than 8,800 MDVN options have traded already this morning, compared to a daily average of 1,300 in the last month. Almost all of the action is in a three-way spread.

A trader sold 2,750 December 52.50 calls for $3.30 against open interest of more than 3,600 contracts. At the same time, he or she bought 2,750 January 55 calls for the ask price of $3.70 and sold the same number of the January 65 calls for $0.40. The volume at each of those strikes was more than open interest, and the bid/ask spread is wide at all three strikes.

The trade is a roll out of the December calls and into the January call spread. The transaction was done for even money and allows the trader to capture any further gains in MDVN up to the $65 level. (See our Education section)

MDVN is down 0.56 percent on the day at $55.02. The stock bounced off support at $44 a month ago and has been climbing since, but it hasn't regained the highs from early October when it was above $58.
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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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