1. Albuferon for chronic hepatitis C,
2. LymphoStat-B for systemic lupus erythematosus, and 3. ABthraxtm for inhalation anthrax.
Albuferon and LymphoStat-B are progressing toward commercialization. In December 2008, the Company reported that Albuferon met its primary endpoint in the first of two Phase III clinical trials in chronic hepatitis C.
Previously, HGSI has had many instances of unusual option activity. This time it caught my attention in the month of July. On Friday, Feb 12 at 1:31pm EST, a trader bought the following butterfly spread:
- Bought to open 1900 contracts of July $28 calls for $4.65 debit (bid $4.45 x ask $4.65)
- Sold to open 3800 contracts of July $35 calls for $1.85 credit (bid $1.78 x ask $1.90)
- Bought to open 1900 contracts of July $40 calls for $0.85 debit (bid $0.74 x ask $0.90)
I have provided the bids and asks at the time the trade was executed to show that the butterfly spread was bought for a net debit of $1.80 per contract. The volume on all strikes was higher than previously established open interest, clearly implying opening positions. Total cost of the trade is $342,000, which will provide peak profit of nearly $1 million if the stock closes at exactly $35 on July expiration.
This is a bullish bet on HGSI with an expectation that the implied volatility will come down. Currently, July IV is at 55.
It is important to note that the company already made an announcement on Jan 11 that its lupus drug most likely will not be approved until 4Q 2010. Additionally, HGSI is constantly a target of take-out rumors and I believe if there is going to be one, it would have to be north of $40 given the potential of its pipeline. As such, I don't believe the trade above is necessarily a bet on FDA approval or merger/acquisition. This one has a touch of trader simply betting on slow rise in stock price with declining IV. The P&L and daily charts are attached. I like the trade.
Good luck!
