VVUS – Vivus, Inc. – One optimistic investor established a three-legged bullish options combination play on Vivus, Inc. today with shares of the biopharmaceutical firm rebounding a modest 1.01% to trade at $5.01 by 12:15 pm (ET). VVUS shares plunged 64% from last week’s high of $12.98 to a new 52-week low of $4.69 after an advisory committee to the FDA reviewed the firm’s obesity drug, Qnexa, and recommended against approval of the drug. The FDA typically follows committee recommendations. However, one investor is holding out hope that Qnexa will eventually be approved after all. The trader is positioning for shares of the biopharmaceutical company to rally by selling put options to offset the cost of buying a debit call spread. The bullish individual sold 10,000 puts at the December $4.0 strike for a premium of $0.80 each, purchased 10,000 calls at the December $7.0 strike for premium of $1.00 apiece, and sold 10,000 calls at the higher December $12 strike for premium of $0.40 a-pop. The investor receives a net credit of $0.20 per contract and keeps the full amount as long as VVUS shares exceed $4.00 through expiration day in December. Additional profits amass should the firm’s shares surge 39.7% to exceed $7.00 in the next several months to expiration. Maximum available profits of $5.20 per contract pad the investor’s wallet if the biopharmaceutical company’s shares jump 139.5% and trade above $12.00 by expiration day.
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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