(The following is an example of notable trading cited on optionMONSTER's InsideOptions Pro service yesterday.)
Neurocrine Biosciences has been running higher, and the bulls are betting that more upside is coming.
optionMONSTER's Heat Seeker program yesterday detected the purchase of 4,700 November 55 calls for $6 and the sale of 3,000 January 35 calls for $18. Volume was below open interest in the January contracts, which indicates that a winning position was rolled closer in time and upsized.
The transaction generated a credit of about $2.6 million, which probably represents the trader's initial investment in NBIX before its big first-quarter surge. Rolling the 55s keeps him or her exposed to more potential gains, with the possibility of increased leverage if the drug developer breaks out to new highs.
Long calls appreciate in value when a stock rallies because they fix the price where investors can get long. Their cheap cost helps manage risk in addition to creating the opportunity for significant leverage. (See our Education section)
NBIX rose 6.06 percent to $53.56 yesterday. It more than doubled between January and March after announcing positive data on a drug to treat the uterine disorder endometriosis.
Shares moved all the way to $56.18 by July, pulled back under $40 when the market crashed last month and have been coming back to life since. It was also recognized as a potential momentum buy in the Aug. 31 installment of our proprietary Market Action webinar.
Overall option volume was 55 times greater than average in the session, with calls accounting for more than four-fifths of the total.
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