Synta Pharmaceuticals Corp (SNTA) is a bio-pharmaceutical company who is focused on developing drugs to serve patients with cancer. Currently the stock is trading around $5.10 in a 52 week range of $3.70-$11.88. Shares of SNTA have been massively under-performing the market this year having fallen over 43% year to date. Despite the weakness in the stock we have seen some very bullish options activity in SNTA during today’s trading session. Earlier today a trader sold 3,000 SNTA Dec 4 puts for $0.15. This is a very bullish bet that involves this trader assuming over $850,000 in risk. The large amount of risk this trader is taking on indicates their high level of conviction that SNTA will close above $4.00 on December expiration. Although SNTA is looking weak on a chart the stock has put together a few good days having rallied over 37% off of its lows made on Wednesday of last week. We believe that recent price action and this large block trade signal as an opportunity for a covered call in SNTA.
Trade: Buying 100 shares of SNTA at $5.10 for every Dec 4 Call sold at $1.25
Reward: $15 per 1 lot
Breakeven: $3.85
Should shares of SNTA close above $4.00 on December expiration this trade will net its maximum potential profit of $15 per 1 lot. This trade also nets some profit anywhere above $3.85. If stock closes above $4.00 on expiration this trade will net an annualized return of 54.7%
