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Tuesday saw what this strategist likes to affectionately call the latest serving of "takeover chowder" and what many other traders call the rumor mill. With the market trading somewhat under pressure within its home in-the-trading range of the past few weeks, names like biotech upstart Vivus (VVUS), conglomerate Rockwell (ROK) and Aggie potash specialist Intrepid Potash (IPI) all saw above-normal stock volume on the session, but only Vivus found a bid in shares and heavier-than-normal option activity.

For option traders in Vivus, a small biotech with its eyes set on finding a solution to obesity, bulls were spied feeding most heavily on the near-the-money January 10 call. A bit more than 4,000 contracts changed hands on the session before closing at $0.70. Versus existing open interest of about 7,000, getting a firm grasp on fresh positioning is made a bit more difficult.

With the call receiving a decent bid in its implieds with an increase of nearly 20% from roughly 73% to 87% IV and roughly two times above its averaged 10 and 20-Day SV levels of 44%, we can safely assume buyers dominated the order flow.

Technically speaking, VVUS did stage a breakout above its Bollinger Band and busted through an existing downtrend line. As the confirmation of a possible new trend in-the-making and occurs after having filled a substantial bullish gap, opening buyers do appear to have some incentive to spec in the long call despite the mixed theoretical pricing and an existing EW5 completion.

Figure 1: Vivus (VVUS) Daily "Nice, but..." View

From a pragmatic perspective, I can't help but notice the 12.50 strike didn't receive nearly as much interest from Tuesday's option buyers. That strikes me, pardon the pun, as slightly odd given the stock's aggressive gap and run up towards the 13 level back in early September. My thoughts are that there should have been heavier action in that call across-the-board, if Vivus had real mad and muscular money behind it and a name which traders really believe as being on the radar of a company like Roche.

Finally, and speaking of "mad money," for Dr. Cramer's part his last words on Vivus was to ring the register at $9.80 back in late October. His reasoning after apparently having sounded the "Buy, Buy, Buy!" from sub $7.00 was there was too much press and now, much to those bulls chagrin, one less enthusiastic sponsor of shares. Net, net I'm thinking bulls are playing a much faster money game that's playing the rumor mill but already looking for an exit strategy rather than remaining longer-term "ho-ho-hopeful" with shares back near Cramer's call to schnitzel more than a little something.

Chris Tyler
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler's observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.

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