OptionsHouse

Options Trading News

August 3, 2012  Fri 2:32 AM CT

ZIOP: SEE CHART GET CHAIN FIND STRATEGIES
Someone is looking for volatility to pick up in ZioPharm Oncology.

optionMONSTER's tracking systems detected the purchase of 2,469 January 5 puts for $0.80 against open interest of just 63 contracts. Several large blocks of shares were purchased shortly after, apparently creating a so-called delta-neutral trade.

Owning puts and stock at the same time makes the investor directionally neutral on the drug developer. They stand to profit, however, from implied volatility increasing because that will inflate the value of the options. Using long-dated contracts increases the sensitivity to the change because they have a higher vega. (See our Education section)

He or she is probably looking forward to results from the ongoing Phase 3 trials of ZIOP's Palifosfamide cancer drug. Option premiums often increase as the market anticipates such data, which can make or break a company's future. Implied volatility currently stands at 57 percent versus its 38 percent historical propensity to move.

The shares rose 4.29 percent to $5.59 yesterday. It reported quarterly results after the bell, but earnings usually don't matter for a development-stage companies like ZIOP.

The delta-neutral trade pushed total option volume in the name to 9 times greater than average.
Share this article with your friends


OptionsHouse

Premium Services

Education & Strategy

Market Level Making You Nervous, Huh? Part 3

In last week's article, we discussed how important the extra cash you save by using the Stock Replacement Strategy over buying the actual stock is! That extra cash in our account instead of being unnecessarily tied up in a stock position allows us to buy the puts we would need to protect our downside in the case of a major sell-off.

View more education articles »