iShares Nasdaq Biotechnology Index Fund (NASDAQ:IBB) – Shares in the IBB, an ETF that tracks the performance of the NASDAQ Biotechnology Index, an index containing securities of companies classified as either biotechnology or pharmaceuticals, are outperforming the S&P 500 this morning, up 0.40% at $112.73 as of 11:30 a.m. in New York. The Fund’s shares are slightly off their all-time high of $114.87 set last Thursday, and options activity on the ETF today suggests one strategist may be locking in recent gains ahead of a spate of earnings releases from companies in the Index. The top 10 holdings represent more than 50% of the total Index. Amgen, Inc. and Celgene Corp. are the two largest holdings, comprising approximately 8.8% and 6.6%, respectively. Both companies are scheduled to report earnings this Thursday. The strategist responsible for the single largest transaction in IBB options today may be hedging a long position in the index or components, or may be taking an outright bearish stance on the biotech and pharmaceuticals space during earnings season. The trader appears to have sold around 4,500 calls at the Mar. $115 strike in order to partially finance the purchase of a 4,500-lot Mar. $107/$112 put spread, all for a net premium outlay of $0.05 per contract. The sale of the call options greatly reduced the cost of the put spread, which may yield profits – or downside protection – to the investor in the event that shares in the IBB dip 0.70% to breach the effective breakeven price of $111.95. Maximum potential profits of $4.95 per contract are available on the position should shares drop 5.1% to settle at or below $107.00 at expiration. The short calls, if uncovered, could result in losses on the trade in the event that the Fund’s shares rally to new record highs by expiration in March.
AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG) – Call activity on the biopharmaceutical company today might have looked bullish at first glance, particularly earlier in the session when shares in the name were still positive on the day. AMAG’s shares rose 1.8% to an intraday high of $15.98 this morning, but have since slipped into negative territory, down 0.30% at $15.65 as of 1:50 p.m. One investor positioning for shares in AMAG to continue to decline appears to have initiated a synthetic put on the stock. The trader likely sold 148,800 shares of the underlying at $15.6297 each and purchased 2,300 in-the-money calls at the May $15 strike for a premium of $2.40 apiece. The long calls offer upside protection should the stock rally ahead of expiration, while gains on the short stock may amass if the price of AMAG’s shares continues to slide. AMAG Pharmaceuticals was cut to ‘underweight’ from ‘neutral’ with a reduced share price target of $12.00 from $20.00 at JPMorgan on Monday. The biopharmaceutical company reports fourth-quarter earnings ahead of the opening bell one month from today.
A123 Systems, Inc. (AONE) – The maker of rechargeable lithium-ion batteries and battery systems popped up on our ‘hot by options volume’ market scanner this morning due to heavier-than-usual activity in AONE puts. Shares in A123 Systems fell 3.05% to $2.22 this afternoon, but put selling in the September expiry suggests one strategist expects the stock to exceed $2.00 through expiration. The trader appears to have sold around 1,000 puts at the Sept. $2.0 strike for an average premium of $0.47 per contract. The investor walks away with the full amount of premium at expiration as long as shares in the name settle above $2.00. AONE’s shares traded below $2.00 as recently as January 5. A123 Systems, Inc. reports fourth-quarter earnings ahead of the opening bell on February 28.