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February 8, 2013  Fri 2:45 AM CT

AUXL: SEE CHART GET CHAIN FIND STRATEGIES
Auxilium Pharmaceuticals has been range-bound since falling sharply last year, and one trader is betting that shares will not collapse to multi-year lows.

A block of 5,000 September 12.50 puts was sold for $0.60 yesterday, according to optionMONSTER's tracking systems. Open interest in the strike was just 51 contracts before the session began, so this is clearly a new position.

The put seller is counting on the stock stay above $12.50 through expiration in mid-September, a level not seen since March 2007. If it falls below that strike price, the trader will face the obligation to buy shares at an effective price of $11.90 when the credit from the put sale is included. (See our Education section)

AUXL fell 1.61 percent yesterday to close at $18.30, just below its 50-day moving average. The drug maker had been trading above $25 in early October but gapped down a month later after missing third-quarter estimates, and shares have been trapped between about $17.50 and $19.50 since then.

Yesterday's put selling made up almost all of AUXL's total volume of 5,082 contracts, which was 4 times its daily average in the last month.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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