Shares of biopharmaceutical company Amarin surged yesterday, but its option activity was led by a large put trade.
A trader bought 4,538 February 8 puts for $0.34 and sold the same number of January 8.50 puts for $0.23, according to optionMONSTER systems. The volume at each strike was more than previous open interest, indicating new activity.
This could be a diagonal spread that cost $0.11 to open and risks losses if shares move too far up or down. The maximum gain would come if AMRN is right around $8.50 at the end of the day tomorrow.
But the trader could also be using the sale of the expiring January puts to offset the cost of the February contracts, which he or she will then hold onto. By the end of the day, the January puts had already dropped in value to $0.13 because of the rapid time decay , while the February options were trading around $0.34.
AMRN finished the day at $9.16, up 10.49 percent. It was at a 10-month low going into the end of 2012.
More than 87,000 AMRN options traded in the session,, compared to daily average of 7,800.
More From optionMONSTER
- Energy bulls position for the long term
- Videocast: VIX pits bet on big move
- Why Huntsman is facing nervous trade
- Investment & Company Information