ZioPharm play targets rise in volatility
David Russell | [email protected]
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.