Mylan has gotten slammed, but buyers are stepping in today.
optionMONSTER's Heat Seeker monitoring program detected the purchase of about 8,000 January 60 calls for about $2.80. Similar numbers of January 50 puts and January 70 calls were sold for $2.50 and $0.78, respectively. Volume surpassed open interest at all three strikes, which suggests that new positions were initiated.
The trade generated a credit of $0.48 and will return $10 if the drug maker closes at $70 or higher on expiration. There is also significant downside risk under $50, as the trader will face the obligation to buy shares if they fall below that level. (See our Education section for more on the strategy, which combines a bullish call spread with short puts .)
MYL is down 1.42 percent to $55.57 in afternoon trading. It spent about four months between $65 and $75 on speculation that it would be acquired by Teva Pharmaceutical, but those hopes were dashed yesterday when TEVA gobbled bought Allergan's generic-drugs business instead. MYL plunged 15 percent on the news and is now back to its lowest price since mid-February.
Attention will now turn to the next earnings report on Aug. 6 and the company's unsolicited $29 billion takeover for Perrigo, which will be the subject of a meeting on Aug. 28.
Today's MYL trade resembles a bullish strategy in April that produced profits of more than 500 percent after exploding higher on news of the PRGO offer.
Overall option volume is quadruple the daily average so far, with the complex three-way accounting for about half the total.
Disclosure: I am long MYL.
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