Auxilium Pharmaceuticals is down today, but one investor is
optionMONSTER's Heat Seeker monitoring system detected the purchase
of 3,000 March 30 calls for an average premium of $2.22 and the
sale of an equal number of March 22.50 puts for $1.85. There was
barely any open interest at either strike before the trade
gives the investor the right to profit from a rally, while
lets him or her collect income by selling insurance against the
stock pushing lower. Combining the two is highly bullish because
both halves of the strategy have an upside bias. (See our
The investor paid $0.37 and will earn leveraged gains if AUXL
rallies higher. He or she will also face steep losses if it drops
toward $22.50. While similar to owning shares, the strategy differs
because it will track the stock less closely as
and expire worthless if the shares stay between $22.50 and $30.
AUXL is down 5.35 percent to $25.50 in afternoon trading. The drug
maker hit a two-year high of $29.37 yesterday after reporting
strong quarterly results but quickly surrendered most of those
Today's trader apparently thinks that the selling is only a
short-term reaction and expects the shares to continue climbing in
the longer term.
Overall option volume in the name is more than 190 times higher
than average so far in the session.
I own AUXL shares.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.
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