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Amarin Corporation plc (AMRN) Call Buyers Eye Extended Gains

Some of today's Amarin Corporation plc traders could be short sellers in disguise

by 8/11/2014 2:24 PM
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Amarin Corporation plc (NASDAQ:AMRN) is up 2.4% this afternoon to hover around $1.70. Not surprisingly, traders have displayed a greater appetite for calls over puts, as 2,249 calls are on the tape, compared to just 26 puts.

The most active AMRN strike is the October 2.50 call, where 1,693 contracts have been exchanged. Almost all have crossed at the ask price, implied volatility has spiked 14.7 percentage points to 159.5%, and just 254 contracts are in open interest -- all signs of buy-to-open activity.

The out-of-the-money calls are being initiated for a volume-weighted average price (VWAP) of $0.25. As a result, at-expiration breakeven on the trade is $2.75, or the strike plus the VWAP, with potentially unlimited gains to be had north of here. Conversely, the traders' maximum risk is the initial premium paid, should AMRN be resting below the strike at the close on Friday, Oct. 17, when the options cease trading.

It should be noted that some of today's call buyers may be short sellers hedging against a continued rally in shares of Amarin Corporation plc (NASDAQ:AMRN). After all, the biopharmaceutical stock is off roughly 68% year-over-year, and short interest is on the rise. Specifically, short interest increased 4.3% during the most recent reporting period, and now comprises 18.2% of the equity's float -- which would take nearly four weeks to cover, at AMRN's average daily trading volume.


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