KERX closed yesterday at $4.25. <img src="http://4.bp.blogspot.com/_hMry1m7UF10/TBeC3y9vR6I/AAAAAAAAC94/tlV3le1cZCQ/s1600/kerx_summary.gif"> Right on market close yesterday (literally 3:59 EST) the Ticker started popping up block trades in KERX. The snap of the ticker is included (<a href="http://livevol.blogspot.com/2010/06/kerx.html">in the article</a>). You can see trades popping up at 3:59 and 4:01 in 1250, 2500 and 5000 lot increments. In terms of order flow indicating direction, the single best "signal" of inside information in my experience are blocks on close (especially in pharma). In fact, we have posted two of these "types" to the blog. In one, the SEC has found wrongful doing, in the other, the trader "voluntarily" busted the trades (i.e. didn't want to go to jail so did it before the SEC had time to react). See SEPR and Perot Systems from last year. <a href="http://livevol.blogspot.com/2009/09/perot-systems-per-options-order-flow.html">Click for First PER Blog</a> <a href="http://livevol.blogspot.com/2009/09/perot-systems-per-sec-says-nice-try.html">Click for Follow up PER Blog</a> <a href="http://livevol.blogspot.com/2009/09/sepracor-sepr-damn-someone-has-good.html">Click for SEPR Blog</a> The trades yesterday in KERX are similar in size and timing (at close), but different in that they were not strictly direction consistent and they were in back months. In other words, this is an interesting case study, but it isn't the golden signal you can find maybe 1-3x a year. Let's see why... The company traded over 16,150 options on total daily average option volume of just 3,280. The trades on close accounted for 15,000 of those contracts (so basically all of it). The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/06/kerx.html">in the article</a>). The Options Tab (<a href="http://livevol.blogspot.com/2010/06/kerx.html">in the article</a>) illustrates that the calls were mostly opening (trade size >> volume) but the puts may not have been (OI > trade size). We can see from the day's biggest trades that the position taken was: Buy 2,500 Dec 5 calls for $1.175 Sell 5,000 Dec 7.5 calls @ $0.50 ---- A 1x2 call spread. Sell 5,000 Jan'11 10 calls @ $0.30 Sell 2,500 Jan'11 2.5 puts @ $0.35 ---- A 1x2 strangle sale. All together the trade PnL chart at Jan'11 expo looks like this (<a href="http://livevol.blogspot.com/2010/06/kerx.html">in the article</a>). We can see this trade reaches max gain at $7.50, but is profitable in the range ($1.725, $10.25) [note, I rounded a bit]. The PnL chart makes it clear that this is not a naked bullish (or bearish) position. usually the over anxious cheats just do something wild, see the posts referenced above for a good example. The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/06/kerx.html">in the article</a>) illustrates the vols bought and sold relative to each other. You can see the downside is actually bending down (as opposed to normal skew which bends up). There aren't very many strikes to form a skew as this is only a $4 stock. Finally, the Charts Tab (1 year) is below (<a href="http://livevol.blogspot.com/2010/06/kerx.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference. Note that the stock high is $6.67, so the bet that it goes to $7.50 (i.e. 76% gain) is still a bold bet. The nice thing about the trade is that it is done for a credit so it makes money in a fat range. The bad part is that it's naked short a strangle in Jan'11 2010 when Dec rolls off. This is trade analysis, not a recommendation. Details, trades, prices, vols, skews, charts here: http://livevol.blogspot.com/2010/06/kerx.html