Options Trading News

July 27, 2012  Fri 2:46 AM CT

Synta Pharmaceuticals has been rallying back from a selloff last month, and one trader apparently thinks that there's no going back.

optionMONSTER's monitoring systems detected the sale of 5,000 September 5 puts for $0.15 against open interest of just 40 contracts. The transaction accounted for more than half Synta's option volume in yesterday's session.

Selling puts obligates traders to buy shares at the strike price if the stock closes below that level on expiration. If its stays above that price, the credit is kept as profit and the contracts expire worthless.

Investors often use the strategy when they like a stock but don't want to spend capital getting long. It's popular because they can make some money from their bullish opinion in the options while effectively programming a buy order in the event of a pullback. (See our Education section for more ways that options can be used to manage risk.)

SNTA surged 12.19 percent to $7.27 yesterday. The company lost one-third of its market value on June 28 after reporting that its prospective cancer drug, ganetespib, interfered with a patient's vision in a Phase 2 trial. The stock has been rallying back since then, erasing most of the losses.
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The art of trading

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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