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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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Market Level Making You Nervous, Huh? Part 3

In last week's article, we discussed how important the extra cash you save by using the Stock Replacement Strategy over buying the actual stock is! That extra cash in our account instead of being unnecessarily tied up in a stock position allows us to buy the puts we would need to protect our downside in the case of a major sell-off.

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