MNTA – Momenta Pharmaceuticals, Inc. – Shares of the biotechnology company spent the better part of the trading session on the decline, falling as much as 3.5% in afternoon trading to an intraday low of $14.38. The stock had more than doubled toward the end of July, rallying 122.6% from $11.77 up to $26.20 in a matter of two trading sessions, but those gains proved to be short-lived. MNTA’s shares spent the final week of July and the month of August in a downward spiral, slipping 46.2% from its 52-week high of $26.20 on July 26, 2010, down to a low of $14.10 on August 31, 2010. One options investor observed today does not seem to think Momenta’s shares have as yet bottomed out. The pessimistic player initiated a ratio put spread to position for the price of the underlying stock to extend losses through expiration in January 2011. The trader purchased 4,000 puts at the January 2011 $12.5 strike at a premium of $2.25 each, and sold 8,000 puts at the lower January 2011 $10 strike for premium of $1.00 apiece. Net premium paid to establish the transaction is reduced to just $0.25 per contract. The investor is prepared to make money should MNTA shares plunge 14.8% from today’s low of $14.38 to breach the effective breakeven price of $12.25 by expiration day. Maximum potential profits of $2.25 per contract are available to the ratio-spreader if shares fall 30.45% to settle at $10.00 at expiration. MNTA’s shares last traded at a 52-week low of $8.70 back on November 3, 2009.
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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