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Bear bets that upside is limited for Endo

Endo Pharmaceuticals is struggling to make new all-time highs, but one investor apparently thinks that the resistance will hold.

optionMONSTER's tracking systems detected the sale of 2,000 April 35 calls for $1.33 and the purchase of an equal number of April 40 calls for $0.33, resulting in a net credit of $1. Volume was below open interest in the higher-strike contracts, so there are two possible interpretations of the trade.

One is that the investor owns the drug stock and had previously sold the 40 calls against it. Today's transaction could have resulted from that short position getting rolled to the lower strike, which let the trader earn $1 in income now in return for relinquishing $5 of upside on the shares.

The second possibility is that both were opened as part of a bearish credit spread. That strategy will let the investor keep the $1 credit if ENDP closes at or below $35 on expiration. It would lose money above $36, with a maximum loss of $4 at $40. (See our Education section)

Regardless of which trade occurred, both reflect a belief that the shares have only limited upside over the next four weeks.

ENDP fell 1.60 percent to $33.91 in afternoon trading. The drug maker surged from about $20 to $37 between May and October, fueled by strong earnings and a big acquisition.

The rally sent the shares slightly above their previous peak in 2007, but they stalled at that level and have been headed lower since. Today's option trades reflect a belief that this level will remain the top for at least the next month.

The activity pushed total option volume in the name to 18 times greater than average.

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.


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

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