Keryx Biopharmaceuticals, Inc (KERX) is a biopharmaceutical company focused on the development of treatments for cancer and renal disease. The stock is currently trading around $13.95 in a 52 week range of $2.23-$14.34. KERX has been massively outperforming the market this year adding over 430% to share prices year to date. A flurry of unusual option activity we’ve seen in today’s trading session suggests that traders believe upside in KERX will continue. Early in today’s session a trader sold 5,000 Dec 11 puts for $0.30. This is an extremely bullish order that also represents volume 2.9 times the average daily option volume in KERX. The high level of risk this trade involves also shows this trader’s conviction and strong belief the stock will be above $11.00 on December expiration. The stock is also trading relatively well on a chart, with shares trading well above the Ichimoku Cloud. The future cloud also suggests that the stock could have further upside potential. Given the bullish technical and the unusual order flow in KERX we believe there is a good opportunity for a covered call here.
Trade: Buying 100 shares of KERX at $13.95 for every Dec 11 call sold at $3.20
Reward: $25 per 1 lot
Breakeven: $10.75
Should shares of KERX close above $11.00 on December expiration this trade will net its maximum potential profit of $25 per 1 lot. This trade will also net some profit anywhere above $10.75. If the stock close above $11.00 on expiration this trade will net an annualized return of 20.8%.
