IB Options Brief: Amylin Pharmaceuticals, Inc. (AMLN) & Arch Coal, Inc. (ACI)

Posted February 14th, 2012 by Caitlin Duffy in Unusual Activity

AMLN ñ Amylin Pharmaceuticals, Inc.
Shares in the biopharmaceutical company went the way of the broader market this morning, trading down 1.5% to stand at $17.33 as of 11:15 a.m. in New York. The maker of medicines to treat diabetes this week announced that BYDUREON, the first and only once-weekly treatment for type 2 diabetes approved by the FDA back on January 27, 2012, for adults with the disease, is now available in U.S. pharmacies by prescription.

News of the FDA approval last month sent shares in Amylin sharply higher, with the stock gaining more than 50.0% to top out at $18.30 in the weeks following the announcement. A large call spread initiated on the drug maker today suggests one strategist is positioning for the shares to continue to post big gains in the next few months. It looks like the investor purchased a roughly 11,000-lot April $21/$24 call spread at an average net premium of $0.58 per contract.

The trader may profit at April expiration in the event that AMLNís shares rally another 25.0% over the current price of $17.33 to surpass the average breakeven price of $21.58. Maximum potential profits of $2.42 per contract are available on the spread if Amylinís shares surge 38.5% to top $24.00 at expiration. The April contract calls expire on the 20th of that month, two days after Amylin Pharmaceuticals reports first-quarter earnings.

ACI ñ Arch Coal, Inc.
The downhill slide in Arch Coalís shares, which have dropped more than 60.0% since this time last year, may not be over, according to one trader establishing a bearish stock and option combination today. The coal producerís shares are currently down 3.7% on the day to stand at $13.35 as of 12:35 p.m. on the East Coast. The purchase of 5,000 call options at the Mar. $14 strike could be mistaken for a bullish play on the beaten-down stock, until you take a look at the sale of 200,000 shares of the underlying tied to the options.

It looks like the trader responsible for the combo purchased the 5,000 calls at a premium of $0.50 apiece and sold 200,000 shares of ACI at $13.255 each on a 40 delta. The long call options are a hedge against potential losses to the upside in the event of a coal-stock-comeback, while the short position in the underlying benefits the investor if shares continue to pullback to fresh 52-week lows.

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