Back to Main

Time is money with strategy in Mylan

By: optionMONSTER
Posted: 4/10/2012 3:41:00 AM
Referenced Stocks: MYL

One investor wants to squeeze a few pennies out of Mylan, betting that it will remain in a range.

optionMONSTER's tracking systems detected the sale of 12,000 April 22 puts for $0.42 and 12,000 April 23 calls for $0.06. Volume was more than twice open interest at both strikes.

The strategy resulted in a credit of $0.50, which the investor will get to keep if the drug maker closes between $22 and $23 on expiration. Profits will erode outside of that range, turning to losses below $21.50 and above $23.50.

Known as a short strangle , the trade is designed to make money from the passage of time rather than a directional move. It will benefit from the especially fast pace of time decay that will occur in the April contracts as expiration approaches at the end of next week. (See our Education section for more)

MYL fell 2.7 percent to $21.98 yesterday. It peaked around $22 in January and then bounced at that level in March, which could be leading some chart watchers to believe that it will find support there again. They might also think upside will be limited now that the stock is below its 50-day moving average. Those considerations could make them comfortable betting the current range will remain in effect in the near term.

The short strangle pushed total option volume in the name to 17 times greater than average in the session.