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Questcor Pharmaceuticals (QCOR) Entices Short-Term Call Players

However, some of these traders used calls to place neutral-to-bearish bets on QCOR

by 3/4/2013 9:15 AM
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Questcor Pharmaceuticals Inc (NASDAQ:QCOR - 32.99) saw an influx of call activity on Friday, as more than 7,600 of these options crossed the tape during the course of the session. This was more than double the stock's average daily call volume, and about four times the number of puts traded. However, not all of these calls were employed in the traditional bullish sense. The April 38 call saw 4,150 contracts exchanged -- 99% of them at the bid price, suggesting they were sold.

Looking more closely at the data, it appears that these out-of-the-money calls traded at a volume-weighted average price (VWAP) of $0.62. Meanwhile, open interest at this strike soared by 3,960 contracts over the weekend, implying that most of the volume was made up of newly added positions. By selling the calls to open, traders are betting on QCOR to remain south of $38 through the close on April 19, when these back-month options expire. This would render the options worthless, and allow the sellers to pocket the initial premium received.

This activity could also be reflective of a covered call-writing strategy. In this case, the speculators may actually be shareholders who are hoping to generate some income on the stock, or possibly seeking some portfolio protection. Either way, data from Trade-Alert shows a delta of 0.22 for the April 38 call, meaning the options have just over a 1-in-5 chance of finishing in the money ahead of April expiration.

Prior to Friday's session, near-term traders seemed to prefer puts over calls on QCOR. The equity's Schaeffer's put/call open interest ratio (SOIR) checks in at 1.48, with puts comfortably outpacing calls among options with a shelf-life of three months or less. This ratio ranks higher than 85% of comparable annual readings, meaning short-term options players have been more put-heavy toward the stock just 15% of the time during the last 12 months.

Technically speaking, the biopharmaceutical company has advanced about 23.5% year-to-date, while also besting the broader S&P 500 Index (SPX) by roughly 27 percentage points over the past four weeks. What's more, the stock finished February atop its 10-month moving average for the first time August 2012. Should QCOR continue to trek higher over the next several weeks, Friday's April call sellers could find themselves at risk of assignment.


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