Friday, May 28, 2010

Cubist Pharma (CBST) - Call Spread on Elevated Vol

CBST is trading 21.65, up 3.3%. The LIVEVOL™ Pro Summary is below.

The company has traded over 5,100 options in the first hour on total daily average option volume of just 351. All but 50 contracts have been calls. The largest trade has been an Aug 20/25 call spread purchase 2000x. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that the 20 calls are opening compare OI to trade size). The 25 calls are unclear at first glance. Upon further investigation I think the 25 calls are long interest, so these sales are closing OI.

You can also see that Jun vol is well below the rest of the months (at the top of the snap). The call spread went for $2.99 - $0.77 = $2.22. The max gain is $5 - $2.22 = $2.78. The max gain:max loss is ~1.25:1. CBST 52 wk. low is $16.27, 52 wk. high is $24.38.

The Skew Tab snap (click to enlarge) is included as well. We can see clearly how low Jun vol (red) is relative to the rest, in particular, Aug (green).

We can also see that the Aug 20 purchase is about the same vol as the Aug 25 sale which is a nice little trick getting equal vol on the upside skew. Note how the Aug 30 line dips.

This is a small bio-tech with lawsuit pending. The skew/vol seem to indicate something happening after this month, though there is at least one scheduled event on Jun 9 (a court case hearing).

This is trade analysis, not a recommendation.

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