An Option Trader’s Take on Human Genome Sciences (HGSI)
Human Genome Sciences (NASDAQ: HGSI) has become a one of the biggest and widespread stocks literally out of the blue over the last year. This company went from what was originally a genomics stock with few significant and ongoing revenue prospects on the immediate horizon to a biotech stock with a very promising lupus treatment candidate in very short order. Now it has a market cap of over $5 billion and it has active share volume and its options are frequently active with a large open interest. We were just given an option alert from Joe Kunkle over at OptionsHawk.com, who relayed the following trading data to us:
- “Human Genome Sciences, with a bullish price, bearish volatility bet as a large call butterfly spread trades in February. The trader bought the $28 and $35 wings for 2,500 contracts, and sold 5,000 of the $33 body strike for a net debit of around $1.25. February implied volatility in HGSI stands at 46%. The trade comes ahead of a January 11th presentation at the big JP Morgan Healthcare Conference. HGSI is expecting FDA approval for Benlysta, it’s blockbuster Lupus drug int he first half of 2010, but this trade is not expecting that event by February and instead sees modest upside ahead of the anticipated approval.”
Today’s options trading data is activity that does not frequently get daily color. But generally speaking, trades of this nature and similar trading patterns are what individual investors and smaller institutional investors love to look for. It is also easy to miss or overlook. At the end of the day, options bets frequently signal significant moves. We have been shown many such pre-move notifications from OptionsHawk like this one today.
Our own review has focused out to April 2010, where this is effectively the last month with a large options open interest until the Janauary-2011 Puts and Calls from our own data seen. From our checks on what to expect, most consider that Human Genome will receive FDA approval. The Lupus treatment reports show safety and efficacy, but the other notion is that Lupus has had no new real treatments in a generation. Still, predicting FDA outcomes has proven over and over to be very risky business.
Human Genome was recently reviewed as we looked for the end of 2009 trading patterns showing how investors and speculators were looking for the next 1,000% returns in the realm of biotech and BioHealth stocks.
JON C. OGG
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I am looking for information about strategies that the home trader can use. Your site will help extend my knowledge of the subject. Is it realistic for the home trader to engage in selling options, or should he stick to buying only? Is it even viable to attempt multi-part trades consisting purely of bought options?