Hot Option Activity on Two Healthcare Names

Spectrum Pharmaceuticals Inc. (SPPI) is continuing its four-day run higher today, up 4% to a new 52-week high in the stock. The OptionsHouse Hotlist is possibly picking up some defensive option activity in the November 7.5 calls. About 3,000 contracts traded electronically on the International Securities Exchange (ISE) on the bid side of $1.55 per contract, which is possibly indicative of a covered call seller. This premium represents downside protection of almost 22% downside protection while giving up any upside to price appreciation above the 7.5 strike.

Meanwhile, options activity is heating up on Biogen Idec Inc. (BIIB). The shares are down almost 7% this morning following the disclosure of another case of PML (progressive multifocal leukoencephalopathy) associated with use of the biotech firm’s Tysabri product. BIIB is seeing a pickup in option activity with 18,000 contracts already crossing the tape today.

The July and August 50 puts traded 3,000 times each in morning trading, possibly indicating the purchase of a calendar put spread. This is likely a put holder rolling out his protection from July to August, expecting this event to not be resolved in the next three weeks. In other words, the investor could be closing out his July puts and opening fresh August puts in an effort to hold on for a longer period of time.