AVNR - Bio-Tech with PDUFA and Options Order Flow with Trades

Discussion in 'Options' started by livevol_ophir, Sep 7, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    AVNR closed at $2.71 on Friday.

    <img src="http://4.bp.blogspot.com/_hMry1m7UF10/TIY5nhGBtPI/AAAAAAAAEjc/yv925Z9SDVo/s1600/avnr_summary.gif">

    AVNR is a pharmaceutical company focused on acquiring, developing and commercializing therapeutic products for the treatment of central nervous system disorders. They have a PDUFA date Oct. 30, 2010.

    The company traded over 27,000 options on total daily average option volume of just 1,072. The largest trade, accounting for ~20,000 contracts was a sale of the Dec 2.5 straddle. The Stats Tab and Day's biggest trades snapshots are included (<A href="http://livevol.blogspot.com/2010/09/avnr.html">in the article</a>).

    The Options Tab (<A href="http://livevol.blogspot.com/2010/09/avnr.html">in the article</a>) illustrates that the calls were opening (trade size >> OI), while the puts are ambiguous.

    Note the vols at the top of the tab:
    Sep: 82
    Oct: 111
    Dec: 200

    Even without the news about the PDUFA, it's pretty obvious that the options reflect a volatility event after the Oct options. This is an interesting trade in that there is muted risk to the downside of stock.

    <b>Trade Stats</b>
    Sell 10,000 Dec 2.5 calls @ $1.00
    Sell 10,000 Dec 2.5 puts @ $1.05
    So on the downside, this breaks even with the stock trading $0.45. Or, in other words, only $0.45 of downside. And, in reality, a stock rarely goes to zero even on catastrophic news, so the downside, is even less. The upside is a different story, naked short and losing after $4.55.

    If one were to cover that up with a Dec 5 call purchase for $0.60 the total credit drops to $1.45. The new breakeven range becomes: [$1.05, $3.95]. An alternative could be to sell the Mar'11 2.5 straddle. That vol is is 176 pricing the straddle @ ~$$2.40. If you cover up with the Dec 5 calls (DEC), the credit is ~$1.90.

    Bio-techs are super risky, please don't trade this naked or with "meaningful" money if at all.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols here:

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  2. livevol_ophir

    livevol_ophir ET Sponsor

    4,000 Mar'11 / Dec 2.5 put spreads were bought today for $0.40.