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June 19, 2013  Wed 4:45 AM CT

NKTR: SEE CHART GET CHAIN FIND STRATEGIES
Nektar Therapeutics is holding a key level, and the bulls are sticking with the name.

optionMONSTER's Heat Seeker monitoring system detected the purchase of some 5,000 November 11 calls for $1.10 and the sale of about 3,000 August 10 calls for $0.75. Volume was below open interest in the August contracts, which suggests that an existing position was closed and rolled to the higher strike.

Owning calls locks in the price where shares can be bought in the San Francisco-based drug developer. Rolling positions to long-dated contracts keeps the investor exposed to gains in a major rally--triggered perhaps by an acquisition or positive test results--at a fraction of the stock price. (See our Education section for more on how to manage risk with options.)

Yesterday's transaction cost about $325,000 and extends the length of the position by three months. It also increases leverage because the number of contracts was almost doubled.

NKTR rose 5.14 percent to $9.81 yesterday and has been moving sideways for years. It's now in the middle of the range but has been finding support at its 200-day moving average in the last month. That could make some chart watchers think that it will push higher.

Total option volume was more than 100 times greater than average in the stock, according to the Heat Seeker. Not a single put traded all session.
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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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