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VIVUS Call Buying Hits Fever Pitch

VVUS traders are targeting front-month call options

by 1/7/2013 11:51 AM
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VIVUS, Inc. (NASDAQ:VVUS - 15.19) calls are flying off the shelf at midday, with option traders gambling on an extended short-term rally for the shares. At last check, the drug maker has seen roughly 22,000 calls cross the tape -- more than nine times its average intraday call volume. For comparison, fewer than 3,500 VVUS puts have changed hands.

Most active is the January 2013 12.50-strike call, which has seen more than 7,400 contracts traded. Ninety-one percent of the front-month calls have crossed at the ask price, and implied volatility was last seen 6 percentage points higher, pointing to buy-to-open activity.

By purchasing the calls to open, the buyers are betting on VVUS to continue today's upward momentum. More specifically, the volume-weighted average price (VWAP) of the calls is $2.67, meaning the buyers' reward will increase the higher VVUS moves beyond the $15.17 level (strike plus VWAP). In late-morning trading, the shares have risen as high as the $15.54 marker.

However, even before VVUS' drug-related rally today, the options crowd was waxing optimistic. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open almost six calls for every put during the past two weeks. Furthermore, this ratio stands higher than 79% of all other readings of the past year, pointing to accelerated call buying of late.

As a result, the security's Schaeffer's put/call open interest ratio (SOIR) sits at 0.33, indicating that calls roughly triple puts among options with a shelf-life of three months or less. What's more, this ratio sits just 3 percentage points from a 12-month nadir, implying that short-term options speculators have rarely been more call-biased during the past year.

At last glance, VVUS has skyrocketed 10.5% to linger in the $15.19 vicinity. Bolstering the stock was news that the company's obesity drug, Qsymia, saw prescriptions soar 67% in the four weeks ended Dec. 21 from the month prior.


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