Options Trading News

May 2, 2014  Fri 11:05 AM CT

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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The art of trading

As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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