Auxilium pullback brings out the bulls
David Russell | firstname.lastname@example.org
optionMONSTER's Heat Seeker monitoring system detected the purchase of 3,000 March 30 calls for an average premium of $2.22 and the sale of an equal number of March 22.50 puts for $1.85. There was barely any open interest at either strike before the trade appeared.
Owning calls gives the investor the right to profit from a rally, while selling puts lets him or her collect income by selling insurance against the stock pushing lower. Combining the two is highly bullish because both halves of the strategy have an upside bias. (See our Education section)
The investor paid $0.37 and will earn leveraged gains if AUXL rallies higher. He or she will also face steep losses if it drops toward $22.50. While similar to owning shares, the strategy differs because it will track the stock less closely as time passes and expire worthless if the shares stay between $22.50 and $30.
AUXL is down 5.35 percent to $25.50 in afternoon trading. The drug maker hit a two-year high of $29.37 yesterday after reporting strong quarterly results but quickly surrendered most of those gains.
Today's trader apparently thinks that the selling is only a short-term reaction and expects the shares to continue climbing in the longer term.
Overall option volume in the name is more than 190 times higher than average so far in the session.
Disclosure: I own AUXL shares.