GENZ – Genzyme Corp. – A three-legged bearish options combination play on biotechnology company, Genzyme Corp., caught our eye today. It looks like one strategist is bracing for Genzyme’s shares to decline ahead of expiration in January 2011 perhaps because Sanofi-Aventis, the French drugmaker looking to purchase the biotech firm, said it is not at this time raising the $69.00 a share or $18.5 billion offer as some rumors suggested earlier this week. Genzyme’s shares slipped 0.55% in morning trading, but recovered this afternoon to stand 0.15% higher on the day at $70.74 as of 1:45 pm ET. The investor responsible for the three-legged transaction sold approximately 5,000 calls at the January 2011 $72.5 strike for premium of $2.70 each, purchased the same number of puts at the January 2011 $67.5 strike at a premium of $3.35 apiece, and shed 10,000 puts at the January 2011 $60 strike for premium of $1.40 a-pop. The trader pockets $2.15 in premium per contract on the transaction, and keeps the full amount as long as shares fail to rally above $72.50 by expiration day in January. Additional profits amass should GENZ shares decline 4.6% from the current price of $70.74 to trade beneath the effective breakeven point to the downside at $67.50 by expiration. Maximum potential profits of $9.65 per contract, which includes premium pocketed today, are available to the investor if the biotechnology firm’s shares plunge 15.2% to settle at $60.00 at expiration next year.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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