The Medicines Company (NASDAQ: MDCO) shares traded higher by 2.5 percent on Tuesday and are now up 7.5 percent overall in the past week. At this point, Medicines Company traders are likely considering taking some profits on the red-hot stock, but at least one large options trader seems to be betting on even more upside from the stock in the near future.
On Tuesday morning, Benzinga Pro subscribers received four options alerts related to Medicines Company.
The first two unusually large trades happened at around 8:40 a.m. The trader first bought 511 Medicines Company call options expiring June 21 with a strike price of $38. The trade happened at the ask price of $1.345. The second trade less than one minute later was the sale of 500 June 21 puts with a $36 strike at the bid price of 95 cents.
About 30 minutes later, another pair of likely related trades came through. The trader purchased another 500 of the June 21 $38 calls at the ask price of $1.50. Again, within five minutes, likely the same trader then sold another 500 of the June 21 $36 puts at the bid price of $1.10.
The two bullish call buys represent a combined $143,729 bullish bet that Medicines Company shares will make it to at least $39.345 in less that three weeks. The two bullish put sales represented an additional $102,500 bullish bet that the recent Medicines Company rally has legs.
Due to the relatively complex nature of the options market, options traders are generally considered to be more sophisticated than the average stock trader. In addition, large options traders are often professional, wealthy individuals or institutions, either of which could have unique insight or information about a company. Even traders that stick exclusively to stocks watch the option market closely for unusual trading activity as an indicator of where the “smart money” is focusing.
Transitioning From Bear To Bull
In May, Medicines Company announced interim Phase II data suggesting inclisiran 300 mg doses in patients with atherosclerotic cardiovascular disease and elevated LDL cholesterol had consistently lowered LDL cholesterol by more than 50 percent without any significant safety or tolerance issues. Since that time, the stock has rallied 11.9 percent.
Tuesday’s trading action suggests one large options trader may have thrown in the towel on a bearish bet that the Medicines Company rally wouldn’t last. The trader appears to have exited a large $36 June put position and transitioned to a large June $38 call position. This trader may even be anticipating another bullish update from the company within the next several weeks.
Because stock investors often use put options to hedge larger bullish stock positions, there’s no way to be 100 percent certain whether an option trade is a standalone purchase or a hedge against a stock position. Given the largest trade on Tuesday was less than $100,000, none of the trades are likely to be institutional hedges in this case.
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