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Biotech / Medical : Agouron Pharmaceuticals (AGPH)
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To: JOHN W. who wrote (3139)12/4/1997 1:16:00 PM
From: Lee Solomon  Read Replies (1) of 6136
 
Let's discuss these puts.

Hi all, I've been lurking for a while. I'm long from 53 (och!). Anyway let's see if we can figure out what's going on with these 4000 puts. The biggest question is whether or not these were sold (long position) or bought (short position).

I first noticed 4000 Nov 40 Puts about a week before the Nov experation. Around Nov 20th the Nov 40 Puts were rolled forward into Dec 40 Puts. When this happend I check the price on both the Nov 40 and Dec 40 Puts and the price was very close. Whoever rolled this position forward was able to accomplish this with no extra money and was waiting for something to happen.

If the puts were bought by an investor he would be quite wealthy now that the price is around 28. I do not know about you but I'd sure take the profit and run expecially sense Dec options expire on the 19th. But look at the Open Interest for the Dec 40 Put, it currently is at 4208. Why is this position still open? There are only two possibilities, first the investor may think there is even move downward movement coming (not likely) or these puts weren't bought, maybe they were sold.

If the puts were sold by an investor he would be really hurting right now. For him to get out of this position AGPH will have to climb significantly above 40. Unfortunately we do not know his original position or how much it cost. Let's just speculate that sometime in the past he sold these puts for 2 bucks each. AGPH will have to go to 42 before Dec 19 for him to break even.

Since this position is still open I believe these puts were sold by an investor or fund expecting the price to rise. Now the question is how will this position effect the stock price through the Dec option experation? My guess is that AGPH will stay depressed significantly below 40 so that these puts can not be rolled forward again and will expire worthless. I hope I'm wrong because I am long.

What are your thoughts?

Lee
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