Intermune: Option Traders Get it Right this Time

Intermune shares were torched in May and fell from $42.50 to $10 as the FDA surprisingly did not approve it's lung disease (IPF) drug pirfenidone (Esbriet).

This morning the CHMP of the European Medicines Agenecy adopted a positive opinion and with shares closing yesterday at $14.27, shares are now indicated to open above $30, more than a 100% move!

For a few weeks now option traders have been placing large bullish bets in January and April, far out of the money call buying in size. Looking at open interest you can see there are 10,447 contracts in January $20 calls, 16,743 in January $22.50 calls, and 30,262 in January $30 calls. In April there are 11,802 in the $15 calls, 12,388 in the $20 calls and 11,619 in the $30 calls.

A few recent large trades include:

November 5: Trader Buys 3,900 April 20/30 Call Spreads for $2.20

November 22: Trader Buys 10,000 April $15 Calls at $4.25

November 30: Trader Buys 4,400 January $22.50 Calls at 15 Cents (Going to be Worth $8+ Today)

December 10: Trader Buys 2,300 January $20 Calls at $0.40


I would expect to see profit taking today so as not to be blindsided if the final decision does to align with the recommendation received this morning.

I've written a few stories on ITMN in recent weeks after seeing institutional sized bullish trades, and here is the most recent one:

December 2, 2010: Option Traders Seeking European Approval for Intermune, Boom or Bust

"InterMune (ITMN) sees a bullish 3 way trade in April as 2,500 $6 puts are sold at $0.90 and 2,500 April $17.50/$25 call spreads are bought at $1.70, net debit of $0.80. Shares have found $12.50 as support and there has been a lot of positioning in OTM January calls the past few weeks, shares pummeled from the $45 mark after the FDA voted against its key drug. January IV skew has a bullish bias and the IV is at 73.5% while April is at 153.7% as the date for potential European approval is not yet known. Pirfenidone is the drug in question and faces European review in Q1 of next year. It is all or nothing here as the Company sold its only other viable pipeline drug to Roche. The FDA Panel in the US recommended approval, sending shares to $48, and then a surprise denial sent shares under $10. Shares would likely move back into the $20's on approval in Europe."