AVNR – AVANIR Pharmaceuticals, Inc. – Options on the pharmaceuticals firm are active today as the company’s scheduled FDA decision date for potential approval of its drug candidate, AVP-923, on October 30, 2010, draws closer. The firm is also slated to present at the UBS 2010 Global Life Sciences Conference this afternoon. Shares are currently up 3.8% at $3.01 as of 12:50 pm ET. It looks like some investors are positioning for shares to move sharply going forward. One such strategist appears to have purchased a long straddle, buying 2,500 calls at the November $5.0 strike at a premium of $0.50 each, and picking up 2,000 in-the-money puts at the March 2011 $5.0 strike for a premium of $3.10 apiece. The transaction positions traders to benefit from increasing options implied volatility on the stock as well as from sharp moves in the price of AVNR shares in either direction. If the drug receives approval, premium on the calls will appreciate significantly along with the price of the underlying stock. But, if shares collapse investors may profit as premium on the puts grows and the value of shares shrinks. Other investors populating AVNR today picked up large numbers of put options. Perhaps these traders are hedging erosion in the price of the underlying stock should the drug candidate fail to receive approval from the FDA in October. Options implied volatility on the stock is up 13% at 175.75% as of 1:00 pm ET.
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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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