By David Russell
A large option trader is playing the upside in Amarin (NASDAQ:AMRN), thinking that the drug developer has more gas in the tank. AMRN surged 95 percent on April 18 after reporting that its AMR101 compound succeeded in reducing bad cholesterol. It's been holding its ground since then and started to climb once again this week.
Today's option trade was a bullish call spread: A block of 4,000 June 22 calls was bought for $0.60 and an equal number of June 25 calls was sold for $0.20. That translates into a net cost of $0.40, with the potential profit of 650 percent if AMRN closes at or above $25 on expiration.
The shares are up 1.36 percent to $17.16 in afternoon trading. Given the amount that AMRN has to appreciate in the next five weeks for the calls to pay off, the investor apparently thinks that an explosive move is possible but does not want the risk of owning shares, which also have the potential to fall.
Using options is a good solution in such a situation because they provide upside exposure at much lower cost than owning stock.
The next big news event for AMRN could be the announcement of a partnership with a larger company to market AMR101. It isn't expected to get regulatory approval until early next year.
Calls outnumber puts by almost 4 to 1 in the stock so far today.