Traders aren't giving up hope of a big rally in drug developer Xoma.
optionMONSTER's Heat Seeker monitoring system detected the purchase of 3,000 November 5 calls for $0.80 and the sale of an equal number of October 5 calls for $0.40. Volume was below open interest in the Octobers, indicating that an existing position was closed and rolled forward in time.
Long calls lock in the price where shares can be bought, letting investors cheaply position for a move higher and generate significant leverage if it does. Adjusting the trade today cost $0.40 and provided an additional month for a rally to unfold. (See our Education section for more on how options can be used to manage risk more effectively.)
XOMA is up 9.8 percent to $4.93 in midday trading and has roughly doubled since the beginning of 2013. It's been pulling back in the last two months and is climbing again today after finding support at its 100-day moving average.
The company has a pipeline of several potential drugs. Gevokizumab, a potential inflammatory treatment, is the most advanced in terms of development.
The Heat Seeker also showed buying in the September 5 upside contracts back on July 12 . They proceeded to more than double after the alert.
Total option volume is 9 times greater than average so far today, with calls outnumbering puts by more than 600 to 1.
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