Range-bound play in Spectrum Pharma
David Russell | email@example.com
Sales and profit have been shooting higher at the Nevada-based company, whose Fusilev drug has been gaining market share for the treatment of colorectal cancer. The stock more than doubled between October and January, but then surrendered most of those gains and has been trapped in a range since.
Today's large option trade in the name is in a short strangle, looking for that sideways movement to continue. An even 5,000 July 11 puts were sold for $0.65, along with an equal number of July 14 calls for $0.35, according to optionMONSTER's systems. Volume was more than 35 times open interest at both strikes.
The investor collected a credit of $1, which he or she will get to keep if SPPI remains between $11 and $14 on expiration. Gains will erode on either side of that range, turning to losses below $10 and above $15.
Given Spectrum's recent rally and pullback, some traders may expect the stock to consolidate, a move that can be exploited by selling calls and puts. (See our Education section for other market-neutral strategies that profit from the passage of time rather than a directional move.)
SPPI is down 1.28 percent to $11.86 in late morning trading. Option volume is quadruple the daily average so far in the session.