Vivus Pharmaceuticals (VVUS) is off 35 cents to $27.38 and a Jul 15 – 33 risk reversal trades on the biotech at even money, 2500X. Looks like puts were sold to buy calls and, if so, is possibly to hedge or “collar” a stock position ahead of the FDA’s July 17 date for the company’s Qnexa obesity drug. The downside $15 puts are 45.2 percent OTM while the upside $33 are 20.5 percent OTM. Yet the bearish combo traded at even money because the vol skew is so steep. A 25 delta July put on VVUS currently has implied volatility of more than 300, compared to about 175 for an equivalent 25 delta July call option on the biotech.
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Frederic Ruffy is a well-known trader, writer, and strategist who has spent years educating investors and creating intelligent, insightful, unbiased market observations that are frequently cited by the Wall Street Journal and other financial publications. As senior analyst, Fred provides frequent and regular notes and daily updates for activity of interest.