IMA – Inverness Medical Innovations, Inc. – News that Inverness Medical Innovations slashed its 2010 earnings forecast by 10% sent shares of the manufacturer of rapid medical tests into free-fall. Shares plunged 18.96% to an intraday- and new 52-week low of $27.60 this afternoon. Investor uncertainty, as measured by the overall reading of options implied volatility, went through the roof, rising 49.5% to 50.24% just before 1:00 pm (ET). IMA’s CEO, Ron Zwanziger, stated the firm’s EPS for the year will be $2.60, which is less than the previous earnings forecast of $2.90 per share. Options investors flocked to the June contract on Inverness to exchange both call and put options on the surge in implied volatility. Put players dominated the scene, exchanging more than 2.4 put contracts to each single call option in action thus far in the session. Bearish players expecting shares to continue to decline purchased 2,800 puts at the June $25 strike for an average premium of $0.22 apiece. Put buyers make money if IMA’s shares fall another 10.2% to breach the average breakeven price of $24.78 by June expiration. Optimistic investors did the opposite by selling 3,500 puts at the June $25 strike to receive an average premium of $0.22 apiece at the June $25 strike price. Put sellers keep the premium pocketed on the sale as long as shares exceed $25.00 through expiration day. Finally, options players expecting shares to rebound in the next couple of weeks purchased at least 1,600 calls at the June $30 strike for an average premium of $1.06 per contract. Call buyers make money if, by expiration, shares of the underlying stock are trading higher by roughly 12.5% to exceed the average breakeven price of $31.06.
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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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