Thursday, November 3, 2011

Medivation (MDVN) - How to Make $42 Million in a Week... Just Trade a Biotech With Information

UPDATE (11-3-2011 3:25pm EST): The Nov 12 calls traded with stock (it appears) 1-1, making that a put purchase, rather than calls (so, not a $36 MM winner).

The second trade still appears to be a 950% winner in six days.

MDVN is trading $38.00, up 129.9% with IV30™ down 67.2%. The LIVEVOL® Pro Summary is below.


Click for Free Trial


Medivation, Inc. is a biopharmaceutical company focused on the rapid development of small molecule drugs to treat serious diseases, for which there are limited treatment options.

Generally, I think that following order flow is a losing game, but this is one that leaves me wishing I was paying attention. Oh, yeah, someone knew... IMHO.

Let's start with the Options Tab from today.

I've highlighted the Nov 12 calls which have an existing OI of 19,871 and the Nov 25 calls which have an existing OI of 6,230. Ugh... Here we go.

Let's start with a nice quiet day at the end of October, like, randomly, October 24th. This bio-tech averages ~3,000 contracts a day and all of a sudden:

We can see that 19,800 Nov 12 calls traded $7.50 in one print against a $6.25 x $7.85 market. So, fair value (mid-market) was $7.05 -- these look like purchases. For the vigilant eyed we can see the Trade Condition is marked "Spread," yet the next largest trade is only a 970 lot. This is a known reporting bug in the ARCA system since... I dunno... forever as far as I know. I'll spare you the details, but the trade was not a spread. So that's 19,800 calls bot for $7.50 on existing OI of 48...yeah, 48...  The total OI before that trade was ~40,000 on all strikes and all options in all months.

Fast forward three calendar days to October 27th. Another quiet day, until:

This time we can see 4,889 Nov 25 calls traded $1.20 against a $0.72 x $1.20 market on existing OI of 8...

These two trades together constitute a sizable bet:
19,800 * 100 * $7.50 = $14,850,000
4,889 * 100 * $1.20 = $586,680

The trade PnL(s) today look like this:
19,800 * 100 *($26.00 - $7.50) = $36,630,000 (247%)
4,889 * 100 *($13.00 - $1.20) = $5,769,020 (983%)

So someone(s) made $42.3 million (combined) on someone(s) else. What lucky guesses?

Mental masturbation...

This is trade analysis, not a recommendation.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

Legal Stuff:


  1. This guy may have knew of an event, but definitely didn't know the timing. He had been rolling this trade for over a year. He was always trying to stay long but had to keep going out further and further. He actually lost a lot on this trade... until he didn't.

    So, here's the scenario... he either knew something and strung it out for over a year to avoid suspicion... or, he did some really good research and just knew WHAT would happen, but didn't know WHEN it would happen.

    We've been following this trade for a long time. I'm apt to think it was actually diligent research. He took a risk, kept paying to keep it on, and hit big. Kudos to him.

    There are other stocks he's done similar strategies with, but haven't paid off.

  2. Awesome feedback, Darren. Thanks for that color. Good for that trader.