Options News
Bulls, bears both win in $MNK
The whipsaw action in shares of Mallinckrodt (MNK) today illustrated how option traders can profit on both upside and downside positions in the same name. On Sept. 4, Market Rebellion’s market scanners flagged the purchase of 10,000 September $3.50 calls for $0.25 to $0.30 with shares at $2.62. This was clearly a new position, as […]
The whipsaw action in shares of Mallinckrodt (MNK) today illustrated how option traders can profit on both upside and downside positions in the same name.
On Sept. 4, Market Rebellion’s market scanners flagged the purchase of 10,000 September $3.50 calls for $0.25 to $0.30 with shares at $2.62. This was clearly a new position, as open interest in the strike was a mere 55 contracts before that session began.
Those calls traded for as much as $0.90 this morning, at least 3 times their purchase prices. The stock soared 56.1% in the same time frame, but even that move was dwarfed by the increase in option premiums on a relative basis in that short period.
MNK faltered later in the session, however, and bearish positions profited as well.
Back on Feb. 26, our tracking systems found that 8,190 January $30 puts were bought for $7.25 to $8.35 with shares at $24.18. Open interest in the strike was only 1,340 contracts before that trade occurred, showing that it was a new position.
Those puts ended today marked at $26.70, more than 3 times their purchase prices. The stock has plummeted 86.1% since that downside position was opened more than six months ago, but even that huge move was nowhere near that of the puts.
It is the second winning downside trade in the name posted on Market Rebellion in three days.
Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.
MNK reached a session high of $4.15 early today but reversed course to close at $3.36, down 13.4%. The stock bounced yesterday after the company announced the sale of BioVectra subsidiary to an affiliate of H.I.G. Capital for about $250 million. But shares then resumed the downtrend that accelerated last week when Bloomberg reported that the drug maker is exploring a possible bankruptcy filing related to the fallout from opioid issues.