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VIVUS, Inc. (VVUS) Sees a Rare Jump in Near-Term Call Volume

VVUS gains popularity among front-month call players

by 4/17/2013 11:04 AM
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VIVUS, Inc. (NASDAQ:VVUS) was trending higher on Tuesday, after the Food and Drug Administration (FDA) granted the firm approval to sell its weight-loss drug, Qsymia, in retail pharmacies. As a result, bullish traders flooded the options pits yesterday, with roughly 24,000 calls crossing the tape during course of the session. This was almost seven times the norm, and more than triple the number of puts exchanged.

The majority of Tuesday's speculators focused their attention on the April 12 call, where 5,360 contracts changed hands -- a healthy portion of them at the ask price, pointing to buyer-fueled activity. More specifically, these calls traded at a volume-weighted average price (VWAP) of $0.31. Meanwhile, open interest at this strike rose by 2,428 contracts overnight, signaling the initiation of new positions.

By purchasing these calls to open, traders are expecting the stock to rise north of $12.31 (strike price plus the VWAP) by April 19th's closing bell, which is when front-month options expire. This denotes a 4.5% increase over VIVUS, Inc.'s current perch at $11.78. However, even if the stock fails to conquer the aforementioned breakeven rail, today's bulls probably won't lose too much sleep over it. The equity's Schaeffer's Volatility Index (SVI) of 60% ranks higher than just 10% of similar annual readings, suggesting VVUS front-month options are relatively cheap right now.

This surge in call volume is a deviation from the biopharmaceutical concern's recent trend. In fact, VVUS' 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.92 is just 8 percentage points shy of a 12-month peak, meaning traders have been snatching up puts over calls at a near annual-high clip.

VIVUS, Inc. has been an underachiever on the technical front, having shed roughly 12% year-to-date, and more than 45% on a year-over-year basis. What's more, despite today's near 2% increase, the shares remain pinned beneath their 20-week moving average, which has acted as resistance since late July.


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