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December 16, 2011  Fri 11:20 AM CT

PCYC: SEE CHART GET CHAIN FIND STRATEGIES
Confidence remains high in Pharmacyclics as the drug developer steadily trends higher.

optionMONSTER's tracking programs detected the sale of 2,500 February 12 puts for $0.40 against open interest of just 97 contracts. If PCYC stays above $12 for the next two months, the trader will get to keep the premium as the puts expire worthless.

This type of put selling, also known as "selling protection," is a common strategy when investors like a name but don't want to expend capital getting long. Unlike owning shares, it has limited profit but huge potential losses if the stock falls dramatically. (See our Education section)

PCYC is up 0.7 percent to $14.36 in midday trading and has more than doubled so far this year. The stock has been riding a wave of optimism about its PCI-32765 compound, which is in early-stage trials as a cancer treatment. It signed a deal with Johnson & Johnson earlier in the month to develop and market the drug if it comes to market.

Overall option volume in PCYC is more than twice the average amount so far today.

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When using the Stock Replacement Strategy, we must remember that in reality, we are doing a STOCK trade. We are just using options. We are replacing the stock position with an option position (long calls).

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