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Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) soared 9% yesterday and struck a fresh two-year high of $12.06, after a Deutsche Bank analyst speculated the firm -- along with sector peer Arrowhead Research Corp (NASDAQ:ARWR) -- may be a takeover target. Not surprisingly, option volume more than tripled the daily average, and the stock's 30-day at-the-money implied volatility spiked 10.2% to 99.3%, signaling elevated demand for short-term contracts.
Most active was ACHN's September 12 call, where roughly 3,000 contracts were exchanged. Traders bought to open these calls at a volume-weighted average price (VWAP) of $0.89, resulting in an at-expiration breakeven mark of $12.89 (strike plus VWAP) -- territory not explored since January 2012. The buyers will rack up additional gains north of this point, while the most they stand to lose is the initial premium paid, should ACHN be resting below the strike at the close on Friday, Sept. 19 -- when the front-month contracts cease trading.
In early action, Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) has given back a portion of Tuesday's gains, down 2.5% at $11.46. Nevertheless, the shares have still tacked on about 245% in 2014, and have outperformed the broader S&P 500 Index (SPX) by more than 320 percentage points during the past three months.