Shares of Ziopharm Oncology gapped higher this week, and option traders are betting on even larger gains ahead.
OptionMonster's tracking systems showed heavy buying in the May 7 calls, including one big block of 3,500 contracts for $0.70. Open interest was a mere 145 contracts coming in today, so someone obviously believes that this $245,000 investment will yield big returns.
Calls lock in the price investors must pay to buy a stock. They can generate nice leverage in the event of a rally, but will expire worthless if the shares don't rise above the $7 strike price by mid-May.
At the beginning of this week, Ziopharm was a $4 stock. Now, after a presentation at an industry conference and Phase III trials of Palifosfamide treatment on soft-tissue sarcoma looking extremely positive, shares are closer to $5.
Palifosfamide belongs to a group of chemotherapy drugs called alkylating agents, which halt tumor growth by binding to cancer-cell DNA and interfering with its function. Full results are expected by the end of this quarter.
Ziopharm shares ended yesterday's session up 0.21 percent to $4.70. Calls dominated its option activity, outnumbering puts by a bullish 15-to-1 ratio.
—By CNBC Contributor Jon "DRJ" Najarian
Options Trading School:
Jon "DRJ" Najarian is a professional investor, CNBC contributor, regular co-host of CNBC's "Fast Money," co-founder of optionMONSTER and tradeMONSTER, and co-lead analyst for the InsideOptions trade idea alert systems. Najarian owns ZIOP call spreads.