Avanir Pharmaceuticals got hammered late last year, but traders are betting on a comeback.
optionMONSTER's Heat Seeker monitoring program detected the purchase of roughly 8,000 April 4 calls, most of which priced for $0.73. A similar number of March 4 calls were sold around the same time for $0.42 in volume below the previous open interest in that strike.
It appears that an investor previously owned the March contracts and is rolling the position forward in time. Making the adjustment cost $0.31 and gives an extra month for the stock to rally. The trade also provides protection from the quickening pace of time decay that will occur in coming weeks.
Long calls lock in the price where a stock can be purchased, so they can be owned in lieu of shares at a much lower price. Capital can be swapped from one contract to another over time, significantly reducing potential losses in the event of a drop. (See our Education section)
AVNR is up 8.85 percent to $4.18 in afternoon trading. The drug developer plunged from over $4 to under $3 in December after reporting a wider-than-expected quarterly loss. The stock has been rebounding since, partly supported by strong sales of the company's Nuedexta drug earlier this month. Today's trade reflects a belief it will continue pushing higher over the intermediate term.
Total option volume is 20 times greater than average in the session, according to the Heat Seeker. Calls outnumber puts by a bullish 28-to-1 ratio.
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