|SQNM - Speculative FDA pending....|
But here is a good timeline and expectations for some of you who trade options and/or like to take a shot:
DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The options market played host to a lot of trading in biotechnology and pharmaceutical companies--a notoriously volatile group whose options attract a lot of speculation.
Among the most popular names of the day was Salix Pharmaceuticals Ltd., a North Carolina drug company that specializes in gastrointestinal disorders.
Trading in Salix spiked to 12 times the normal level as investors prepared for a U.S. Food and Drug Administration panel, which assembles Tuesday to discuss rifaximin, a drug that treats a liver disorder.
A bulk of Monday's trading signaled bullish expectation for Salix shares, even though the FDA released documents on Friday that questioned whether the correct endpoint had been used in a clinical trial of the drug.
Investors picked up 33,000 calls that allow them to buy the company's stock and 23,000 puts that allow them to sell it, according to Trade Alert.
One of the largest transactions involved a three-legged trade, whereby one investor adopted a "call spread" in the company's March contracts--buying March $25 calls and selling March $30 calls--and then sold March $17.50 puts to help
offset the cost. Priced at 95 cents, the position makes money if Salix shares
climb above $25.95 before expiration on March 19.
Salix's stock recently traded at $24, down 6.2%.
Elsewhere, traders sought positions in InterMune Inc., a biopharmaceutical company that develops therapies in pulmonology and hepatology.
Trading in the California company jumped to four times the normal level, as investors picked up 29,000 calls and 9,000 puts. A lot of the volume hit the
tape midway through the session, when one investor pursued a bullish "butterfly spread" in the March contracts--buying March $25 calls and March $35 calls and selling March $30 calls.
With the stock trading recently at $15.09, down 1.6%, the butterfly position works best if InterMune shares climb to $30--but not above that level.
The activity in InterMune precedes an FDA advisory committee meeting on March 9, where experts will review the company's pirfenidone drug, which seeks to slow the deterioration of lung function as a result of idiopathic pulmonary
There was also considerable trading in Medivation Inc., a San Francisco biopharmaceutical company that's expected to report late-stage data for its experimental Alzheimer's treatment by midyear.
Traders in this case picked up 16,000 calls and 19,000 puts, with one investor selling a call spread--selling March $40 calls and buying March $50 calls--to signal some skepticism in the stock's strength.
Medivation's stock was recently down 1.5% at $37.04.
Accompanying the trading activity in all three companies--Salix Pharmaceuticals, InterMune and Medivation--were noteworthy increases in the implied volatility of all three names. That suggests that investors are bracing for the stocks to stage greater swings in coming weeks.
Elsewhere, there appeared to be a bit of bullish trading in Sequenom Inc., a molecular-diagnostics company. Traders picked up 18,000 calls and 4,000 puts, showing particular interest in April $6 calls and March $7 calls. The former are priced at 85 cents and make money if Sequenom shares rise above $6.85--about 19% above the recent price of $5.75, a 7.9% gain on the day.
The options on Sequenom have been active since Feb. 16, the same day the company launched SensiGene Fetal (XY), a test to determine the sex of a fetus.
-By Tennille Tracy, Dow Jones Newswires; 212-416-2183;
(Thomas Gryta contributed to this article.)