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Coronado Biosciences Inc (CNDO): Is the Rally Nearing an End?

Call selling is a popular tactic in CNDO's options pits today

by 12/13/2013 2:49 PM
Stocks quoted in this article:

Option Brief: Shares of Coronado Biosciences Inc (NASDAQ:CNDO) are soaring today, up 22.5% on news of the successful clinical trial of an experimental autism treatment. Likewise, options trading activity is exploding -- particularly on the call side, where volume is more than 97 times the intraday norm.

Most active is CNDO's May 2014 2.50-strike call, where north of 3,500 contracts (including a 1,500-lot) have changed hands. Nearly all the volume traded at the bid price, implied volatility is 3.5 percentage points higher, and the International Securities Exchange (ISE) confirms sell-to-open activity.

By writing the calls, today's traders think Coronado Biosciences Inc (NASDAQ:CNDO) -- currently hovering at $2.18 -- will remain south of the strike price through May 2014 options expiration. If that happens, the options will expire worthless, and the speculators will retain the premium they received at initiation.

On the other hand, if the stock rallies beyond that mark, the call sellers may be assigned. In that case, they'd be responsible for selling the shares for $2.50 apiece, no matter how high they've risen.


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