Watson Pharmaceuticals surged after a strong earnings report this week, and one trader is extending a position in hopes of more upside.
optionMONSTER's Heat Seeker systems show that a trader sold 2,500 February 60 calls for $0.10 under open interest of 4,940 contracts and, at the same time, bought 2,500 March 60 calls for $1.95 against open interest of 636.
Because the February calls were below the open interest at the beginning of the session, the activity suggests that the trader closed the position a day before they expire. He or she then opened a new position in March, paying a net $1.85 for the transaction, effectively rolling the calls forward by one month to allow more time for the stock to rise.
For these new long calls to turn a profit, the drug maker's stock must gain roughly 3 percent by the time they expire in on March 16. The next potential catalyst could be Watson's scheduled presentation at the Citi 2012 Global Healthcare Conference on Feb. 27.
WPI is off 0.13 percent to $60.23 this morning as shares sit just above their 50-day moving average, facing a resistance level in place for the last month. The stock gapped higher on Tuesday after Watson beating earnings expectations and raising its outlook. (See researchLAB for more)
Overall option volume in the name is just under 6,000 less than an hour into today's session, already double its full-day average. Calls at all strikes outnumber puts by 39 to 1.
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