Thursday Options Brief: VVUS, NUS & RHT

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Includes: NUS, RHT, VVUS
by: Interactive Brokers

VVUS - Vivus, Inc. - A large options trade on Vivus, Inc. appears to be a directional bet on the biotech company's shares ahead of impending recommendations from an advisory panel, as well as a possible decision from FDA regulators, on whether to approve obesity drug, Qnexa. Shares in VVUS are down 1.5% today at $20.06. The large call butterfly spread purchased on Vivus in the first half of the trading day yields maximum possible gains in the event that shares soar more than 50.0% in the next three weeks. The options player responsible for the single largest trade in the name today appears to have purchased 3,250 calls at the April $27 and $35 strikes, and sold 6,500 calls at the April $31 strike, all for a net premium of $0.55 per contract. Profits on the call 'fly kick in if shares in VVUS rally at least 37.3% to surpass the breakeven share price of $27.55, while the maximum potential payoff of $3.45 per contract is available to the trader as long as the stock jumps 54.5% to settle at $31.00 at expiration next month. The strategist stands to lose the full amount of premium paid to establish the spread if shares settle below $27.00 or above $35.00. A decision from regulators is expected by April 17th, three days prior to options expiration.

NUS - Nu Skin Enterprises, Inc. - Bearish activity in Nu Skin Enterprises, Inc. options is on the rise this morning with shares in the maker of anti-aging skin products and other personal care items trading down 4.4% at $56.85 as of 11:15 a.m. in New York. Traders picking up $55 strike put options in April and May today appear to be positioning for the price of the underlying shares to extend losses in the near term. Front month $55 puts changed hands more than 800 times in the first half of the session against open interest of 55 contracts. Put players purchased the majority of the puts for an average premium of $1.15 apiece, with profits available on the position in the event that shares in Nu Skin drop another % to trade below the breakeven price of $53.85 by expiration. Volume of 1,500 puts exchanged at the May $55 strike is almost twice that of the same-strike options expiring in April. It looks like most of the May expiry puts were purchased for an average premium of $2.30 per contract. Traders long the puts profit at expiration if shares in Nu Skin Enterprises decline 7.3% to breach the average breakeven point on the downside at $52.70. The skincare products provider is scheduled to report first-quarter earnings on May 3rd.

RHT - Red Hat, Inc. - Better-than-expected fourth-quarter results from the maker of Linux software blew the lid right off Red Hat's prior 52-week high of $54.01, as investors sent the stock up 18.0% to $60.62, the highest share price in more than a decade. Options on Red Hat lit up with activity straight out of the gate this morning, with more than 35,500 contracts having changed hands so far today versus the stock's 90-day average options volume of 4,383 contracts. Traders eyeing further upside potential on the shares looked to the April $60 and $65 strike calls. More than 4,100 in-the-money calls traded at the April $60 strike against open interest of 538 positions, with much of the volume generated by buyers paying an average premium of $1.26 apiece. Traders paid an average of $0.36 per contract for more than 1,000 calls at the higher April $65 strike, which may pay off at expiration in the event that Red Hat's shares rally another 7.8% over today's high to surpass the average breakeven share price of $65.36.