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May 2, 2014  Fri 11:05 AM CT

MNK: SEE CHART GET CHAIN FIND STRATEGIES
Mallinckrodt reports earnings next week, and call selling sees limited upside in the Irish pharmaceutical company for the next several months.

A block of 3,250 October 80 calls was sold for the bid price of $5.10. This is clearly a new position, as open interest in the strike was just 515 contracts before the trade appeared.

These calls could have been sold naked with an initial bearish bias, but it is more likely that they were traded against a long-stock position in a covered-call strategy. The latter would be bullish up to $5.10 but not beyond, as the trader would be obligated to sell shares above that strike price. (See our Education section)

MNK is up 1.25 percent to $71.47 in midday trading after peaking at $72.62 earlier in the session, just off its high set in late February. Shares bounced off support at $60 three weeks ago.

The Dublin-based drug developer saw bullish option activity twice in the last month. The company is scheduled to announce quarterly results on May 8 before the market opens.
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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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