Bears take a big dose of Novartis

By David Russell,

Shutterstock photo

Novartis has been rising sharply for almost two months, and but now one trader is positioning for a reversal.

NVS optionMONSTER's Depth Charge tracking system detected the purchase of 10,000 January 55 puts for $1.05 and the sale of an equal number of January 65 calls at an average premium of $0.625. Volume was more than three times open interest in both strikes.

The trade cost about $0.425 to implement and will simulate a short position in the Swiss drug stock. It may be the work of a shareholder looking to protect a long position in the stock against a pullback. If that's the case, the strategy would be known as a collar, capping the upside at $65 and covering losses below $54.575.

Alternatively, it might be an outright bearish play, in which case it would make money below $54.575 and experience losses above $55. (See our Education section)

NVS is up 0.7 percent to $59.63 in afternoon trading and has risen 19 percent since mid-August. The shares are down after opening at a new two-year high today and are near their all-time high around $61, so some traders may think that it's time to exercise caution--especially with the next earnings report scheduled for Oct. 21.

Overall option volume in NVS is 5 times greater than average so far today.

(Chart courtesy of tradeMONSTER)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: NVS

More from optionMONSTER




Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by