Options Trading News

December 13, 2012  Thu 12:20 PM CT

One investor apparently thinks that the sky's the limit for generic-drug maker Mylan.

optionMONSTER's Heat Seeker monitoring program detected the purchase of about 3,300 April
27 calls for $2.06 and the sale of an equal number of April 30 calls for $0.59, resulting in a cost of $1.47. Volume was below open interest at the lower strike, so there are two possible explanations for the trade.

One is that the investor owns shares and had previously sold the April 27s to earn income. The upside would have been capped at the strike price, so the trader rolled the position higher to the April 30s. That gave him or her the right to collect an additional $3 from the shares pushing higher.

Alternately, both legs of the trade could have been opened in a new bullish call spread. That strategy would leverage a move to $30, with potential profit of more than 100 percent. (See our Education section for more on how options can be used to amplify even modest fluctuations in underlying share prices.)

MYL rose 0.4 percent to $27.95 in afternoon trading. Shares are up 34 percent in the last six and are near their previous all-time high of $28.75 set in October 2003.

Based on today's option action, one trader is looking for a breakout of that level by sometime in the spring. The company has been riding a wave of strong quarterly reports and raised its guidance twice since June.

Some 7,600 contracts have traded so far in the session, almost quadruple the average amount. Not a single put has crossed our screeners all day.
Share this article with your friends

Related Stories


Large downside play increased in Mylan

September 6, 2016

The drug maker has dropped 13 percent in the last month, and one trader apparently believes that shares have more downside potential.


Premium Services

Education & Strategy

Continue to melt up? Think debit call spreads

The U.S. equities market is continuing to melt up. Even though the labor market is stagnant, the Fed keeps hinting that a short term interest rate hike is coming sometime soon.

View more education articles »