AFFY – Affymax, Inc. – Shares of the biopharmaceutical company plunged 68.7% to an intraday low of $7.20 today after data showed that non-dialysis patients taking Affymax’s anemia drug, Hematide, have a higher rate of heart attacks, chest pain, heart failure, arrhythmia, strokes and death than patients taking a similar drug made by Amgen Inc. The Hematide safety concerns inspired a downgrade of Affymax to ‘underperform’ from ‘outperform’ with a 12-month target share price of $7.00 by an analyst at RBC Capital this morning. Bearish options investors populating AFFY today initiated trades implying the price of the underlying stock will not recover in the next several months. Pessimistic players sold short roughly 2,800 calls at the July $10 strike to pocket an average premium of $0.37 apiece. Investors short the calls keep the full $0.37 premium received today as long as Affymax’s shares trade below $10.00 through July expiration. Call-selling spread to the October $10 strike where approximately 1,600 calls were shed for an average premium of $0.80 per contract. Investors keep the full $0.80 premium per contract if shares of the underlying stock fail to rally above $10.00 ahead of October expiration.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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