Options market sees Celladon heart drug as all-or-nothing bet

By Saqib Iqbal Ahmed NEW YORK (Reuters) - Celladon Corp's shares could either double in value or collapse over the next four weeks after the drug developer announces results from a heart failure gene therapy trial, options data shows. Later this month, Celladon is expected to report results from a mid-stage study of Mydicar, its experimental gene therapy for advanced heart failure, a condition in which the heart muscle cannot pump enough blood to meet the body's needs. Celladon shares have shed about 15 percent of their value this year, but the options market is expecting a far more explosive move from the shares by mid-May. On Friday, the cost of a May straddle in Celladon's options, where a trader buys an at-the-money put option and a similar call option, implies a move of about 90 percent in either direction by May 15. This means that the shares are viewed as having the potential for rising to more than $31, or plunging to less than $1.60 by May 15. "Mydicar is one of Celladon's primary drivers, and we are biased that the result will be positive and the stock price will go up," HC Wainwright analyst Ching-Yi Lin said. Lin initiated coverage on the company on April 7 with a "buy" rating and a target price of $31. Activity in Celladon's options picked up significantly in recent weeks, with the average daily volume in April standing at about 7,500 contracts, five times the daily volume for the preceding two months, according to Trade Alert data. "Since most of the open interest is in the May term, it is probably related to the drug study results later this month," said Fred Ruffy, options strategist at WhatsTrading.com. Both bullish and bearish bets have attracted activity, making it difficult to get a sense of directional bias from the options order flow, Ruffy said. Bets on the shares rising above $40 by mid-May represents the biggest block of open interest in the stock's options, with more than 10,100 contracts outstanding. On the other hand, puts counting on the shares dipping below $10, $7.50 and $5, by the same date, have also attracted a lot of interest, with combined open interest of about 14,500 contracts. (Reporting by Saqib Iqbal Ahmed; Editing by Jonathan Oatis)