Human Genome Sciences, Inc. (HGSI) – Shares of the biopharmaceutical company have exploded to reach a new 52-week high today. Currently the stock has gained more than 206% to stand at $10.17 after the firm’s experimental lupus drug, Benlysta, reportedly reduced patients’ symptoms in a year-long study. Option traders exchanged more than 110,000 contracts by noon (EDT) and were seen taking bullish stances on the stock. Investors, who perhaps missed out on the rally, chose to sell put options in the near-term August contract. The August 10 strike price had 3,400 puts sold short by traders for an average premium of 1.33 apiece. Put-sellers will retain the full premium if the puts land out-of-the-money by expiration. Otherwise, these individuals bear the risk of having shares of the underlying put to them at an effective price of $8.67. One investor chose to initiate a bullish reversal by selling 2,200 puts at the August 7.5 strike price for 25 cents each in order to purchase 2,200 calls at the August 12.5 strike for 45 cents per contract. The spread cost the trader a net 20 cents and will prove profitable if shares can rally through the breakeven point at $12.70 by expiration. Additional bullishness was seen through pure-call buying plays. The August 10 strike price had 2,100 calls coveted for an average premium of 1.33 each while the higher August 12.5 strike had about 2,800 calls picked up for 54 cents each. Option implied volatility on HGSI has imploded from Friday’s closing reading of 354% to the current value of 80%.
Orexigen Therapeutics, Inc. (OREX) – The biopharmaceutical company focused on developing treatments for obesity has enjoyed a massive 21.5% rally in shares today to $6.93. The bullish price movement is due to reports that Contrave, OREX’s experimental diet pill, slimmed patients in three studies. The firm now hopes to garner U.S. approval to begin selling the medicine in the first half of 2010. One option trader was seen positioning for continued upward price movement through expiration in September. A bullish reversal was initiated through the sale of 2,500 puts at the September 5.0 strike price for 20 cents each spread against the purchase of 2,500 calls at the higher September 7.5 strike for 60 cents apiece. The net cost of the bullish transaction amounts to 40 cents. Shares of OREX must rally higher by 14% before the investor begins to profit at the breakeven price of $7.90.
iShares MSCI Japan Index fund (EWJ) –– A relief rally stemming from CIT’s eleventh-hour reprieve from a Chapter 11 bankruptcy filing has created a positive equity market tone. The ramifications swathe other assets with a weakening Japanese yen one of the victims in this case. It could be that this has set off the ambitions of one option trader today as he looks to the September options on the EWJ in search of a continued run-higher for far eastern stocks. Shares in EWJ are 0.8% firmer at $9.33 as this option trader appeared to buy 50,000 call options at the 10 strike in search of further upside movement for share prices at Japanese companies. The trade at just a dime per contract was already cheap enough, but the trader also sold 25,000 put options at the lower 9 strike for 20 cents. Given the two-for-one ratio involved the trader has a free stab at any rally above the 10 strike. The situation gets sticky below the short put strike, but we should remember that this trader may be trying to defend a short position in the underlying in the first place.
General Electric (GE) – Early gains in shares at GE have given way to a more subdued reaction and after a rise after the bell to $11.92 have eased to $11.66. Option buyers aimed for the August 12 calls en masse earlier pushing premiums to 46 cents before falling to 34 cents. Later in the morning put buyers stepped up to buy around 20,000 contracts suggesting that shares would make a beeline for a share price of below $10 prior to September’s expiration. On Friday post-earnings this too was a popular venue as investors parsed the conference call commentary. It appears that even after the weekend’s digestion phase, there’s a nagging doubt about either the outlook for demand or the prospects for General Electric to grow earnings.