Interesting Trade in Poniard
December 03, 2009 1:09 PM
Poniard Pharmaceuticals (NASDAQ: PARD) recently cratered after their Phase III lung cancer trials failed their primary endpoints and options activity has been hot and heavy in the name ever since. Being valued at $7.60 pre-crash and now only 2.25, it appears that some traders are betting there is more room to run in the name over the next few months.
Today we see 20,000 March 5 and 2.50 puts traded. At first glance, one would assume this is a long put spread reflecting bearish sentiment, but that isn’t so. After reviewing the trade history data, it appears that the 5 strike was sold for 3.10 and that the 2.50 puts were bought for 1.25, both trades occurring outside the bid/ask spread.
In this transaction the trader will keep his net credit of$1.85 if the stock rises above $5 at March expiration. If the stock remains below $5 he will be obligated to purchase 2 million shares at $5, bringing his cost basis to $3.15. If the stock remains below $2.50 the most the trader can lose is $0.65, however.
