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The shares of Opko Health Inc. (NYSE:OPK - 6.92) jumped to an all-time high of $7.10 right out of the gate today -- likely to the dismay of yesterday's options traders. During the course of the session, the pharmaceutical and diagnostics concern saw nearly 8,300 typically bearish bets change hands -- more than eight times its average daily put volume. Today, however, call traders are taking the reins.
Most active on Monday were the June 5 put and the March 7 put, which saw around 3,500 and 1,500 contracts traded, respectively. The majority of the puts crossed at the ask price, and open interest increased at both strikes overnight, pointing to buy-to-open activity.
The June 5 puts changed hands at a volume-weighted average price (VWAP) of $0.30, indicating the buyers will make money if OPK retreats beneath the $4.70 level (strike minus VWAP) within the next several months. However, considering the stock's recent ascent, it's possible the out-of-the-money puts were purchased as a form of portfolio insurance. In this case, the buyers' ultimate goal is for OPK to continue its upward momentum; the puts merely lock in an acceptable sale price for the OPK shares, should the stock perform an about-face.
Meanwhile, the VWAP of the now at-the-money March 7 puts was $1.00, suggesting the buyers will profit if OPK backpedals south of $6 by mid-March, when the back-month options expire. However, even if OPK extends today's climb -- likely induced by a shout-out on Jim Cramer's Mad Money program -- the buyers' maximum risk is capped at the initial premium paid for the puts.
In early trading today, the sentiment tide has apparently shifted. OPK has seen more than 4,300 calls cross the tape so far -- about nine times its average intraday call volume, and more than triple the number of OPK puts traded. Digging deeper, it appears bulls are buying to open the September 7 call, which has seen more than 1,600 contracts change hands on open interest of fewer than 1,300. Plus, the bulk of the calls have crossed at the ask price.
By purchasing the calls to open at a VWAP of $0.65, the speculators will reap a reward if OPK topples the $7.65 level (strike plus VWAP) by September options expiration. Again, though, the most the traders stand to lose is the premium paid at initiation.
At last check, OPK has pared a portion of its early gains, with the shares up 4.9% at $6.92.