Tuesday, September 7, 2010

Avanir Pharma (AVNR) - Bio-Tech with PDUFA and Options Order Flow with Trades

AVNR closed at $2.71 on Friday. The LIVEVOL™ Pro Summary is below.

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 (click either image to enlarge).

The Options Tab (click to enlarge) 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.

Trade Stats
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.

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