VVUS – Vivus, Inc. – The biopharmaceutical company popped up on our scanners after one optimistic individual replicated a three-legged bullish options combination play that we observed during Tuesday’s trading session. Shares of the Qnexa maker rallied 7.65% to $5.48 by 11:55 am (ET). Today’s transaction is nearly identical to yesterday’s bullish trade, but the more recent play is half of the size of the original and yields a net credit that’s also half the size. The investor sold 5,000 puts at the December $4.0 strike for premium of $0.75 apiece, purchased 5,000 calls at the December $7.0 strike for premium of $1.10 each, and sold 5,000 calls at the higher December $12 strike for premium of $0.45 a-pop. The trader responsible for the transaction pockets a net credit of $0.10 per contract, and keeps the full amount received as long as the biopharmaceutical company’s shares exceed $4.00 through expiration day in December. Additional profits accumulate should Vivus, Inc. shares surge 27.7% over the current price of $5.48 to surpass the $7.00-level by expiration. Maximum available profits of $5.10 per contract are safe in the investor’s piggy bank if the price of the underlying stock jumps 119% to trade above $12.00 ahead of expiration day in the final month of 2010. Options implied volatility on VVUS is up 14.7% to stand at 74.42% just after 12:00 pm (ET).
Affiliation: Interactive Brokers
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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