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Calls bet on sharp rally in Sarepta

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Sarepta Therapeutics has been trying to recover from a steep drop, and traders are looking for a strong rally in the next five weeks.

optionMONSTER's Heat Seeker system shows that 3,490 October 43 calls were bought in 3 minutes on Friday for $2.85 to $3.10. This is clearly a new position in the biopharmaceutical company, as open interest in the strike was just 82 contracts before the trade appeared.

These long calls lock in the price where the stock can be purchased through mid-October no matter how far it might rise. The options could be sold earlier at a profit if premiums gain with a rally before then, but the contracts will expire worthless if shares remain below $43. (See our Education section)

SRPT rose 1.33 percent to close at $37.21 on Friday. Shares have been drifting higher since bouncing off their 200-day moving average in mid-August and received a "buy" recommendation from Stifel on Sept 6, but they have faced overhead resistance at their 50-day moving average for the last week. The stock plunged from above $47 in July on concerns that the company's proposed muscular-dystrophy treatment might not be granted an accelated approval process.

Total option volume in the name topped 18,300 contracts, more than 7 times its daily average for the last month.

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