Options Investors Bet on AMAG

AMAG Pharmaceuticals, Inc. (AMAG) shares rallied last week after a large analyst firm recommended the stock. Grant Zeng of Zacks Investment Research wrote that the company’s iron replacement drug, Ferumoxytol, showed promising results in clinical trials and should ensure strong growth for AMAG in the coming years. The firm also reiterated its “buy” rating on the stock with a price target of $70 per share, which is well above the current trading price of $36.75 per share.

The upgrade also sparked heavy options trading on AMAG Pharmaceutical’s stock. Some 17,907 call options traded on Friday, which is more than 7x the average daily volume of 2,343 contracts. The majoity of the action was centered around the November $60 calls, but there was interest in the December calls as well. Some investors confident in AMAG Pharmaceutical’s upside and Zack’s investment research are LEAPS calls as an alternative to stock ownership.

The January $65 2010 LEAPS calls are the most popular with the $50 calls following close behind. The $65 calls are currently trading at just $8.10 a piece, which gives investors the right to 100 shares at $65 before January 2010 for just $810 down. This compares to the $6,500 down it would otherwise cost to establish a position that large. Unfortunately, the volatility in the stock may cause some to hesitate as the options are now more expensive.

AMAG Pharmaceuticals filed the NDA for Ferumoxytol in December 2007 and expects the FDA to approve the drug come early 2009. Clinical data on over 1,700 patients indicates an excellent safety profile with low incidents of heart problems. If approved, the drug would be a milestone for iron replacement therapy for anemia in chronic kidney disease while the drug could also be used as an imaging agent to aid in diagnosis.

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