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Traders Brace for an Achillion Pharmaceuticals, Inc. (ACHN) Slide

Achillion Pharmaceuticals, Inc. put buying picked up on Friday, despite the stock's rally

by 7/14/2014 9:53 AM
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Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) gained 8.7% on Friday, despite a lack of notable news. Meanwhile, in the options pits, puts traded at double the usual daily pace, and outnumbered calls -- 6,919 contracts to 5,083. Against this backdrop, the biopharmaceutical firm's 30-day at-the-money implied volatility spiked 9.8% to 103.9%, suggesting increased interest in short-term contracts.

Along those lines, ACHN's most heavily traded strike was the July 7 put, where 6,156 contracts were exchanged. The vast majority crossed at the ask price, and open interest spiked over the weekend, collectively suggesting the puts were bought to open at a volume-weighted average price (VWAP) of $0.22.

By scooping up the contracts, last week's speculators either expect ACHN shares to pull back south of $6.78 (strike less VWAP) by this Friday's close -- when front-month options expire -- or are protecting against a move lower. Regardless of their motive, the traders have risked no more than the initial premium paid -- which they'll forfeit, should the stock be sitting above the strike at the end of the week.

On the charts, Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) has given back a portion of Friday's gains, down 1.6% out of the gate to trade at $7.52. However, the shares have still more than doubled on a year-to-date basis, and could find a layer of support at the $7.50 level, which provided a foothold in late June through early July.


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