Options Active on AVANIR Pharma Ahead of FDA Decision

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.

About Andrew Wilkinson 1023 Articles

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.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

Visit: Interactive Brokers

Be the first to comment

Leave a Reply

Your email address will not be published.