Edwards Lifesciences cratered yesterday, but one investor took a leap of faith.
optionMONSTER's Heat Seeker monitoring program detected the purchase of 2,000 January 70 calls for $4.82, while equal-sized blocks were sold in the January 60 puts for $4.68 and the January 85 calls for $1.34. Volume was more than 8 times open interest at all three strikes.
The strategy combines a vertical spread with short puts to pay the investor an initial credit of $1.20. He or she now stands to collect an additional $15 if EW closes at or above $15 on expiration early next year. Their main risk is to the downside, with a drop below $60 driving 60 puts into the money. (See our Education section)
EW fell 22 percent to $64.60 yesterday after weak demand for its Sapien heart valves forced management to lower guidance. The product has been struggling to gain acceptance since its launch in late 2011, and shares have lost more than one-quarter of their value so far this year.
The drop brings EW back to levels where it bounced 16 months ago, which could be leading some chart watchers to expect a bounce. It only needs to reach its levels from mid-April for yesterday's three-part strategy to inflate to full value.
Total option volume was 90 times greater than average in the session.
More From optionMONSTER