MYL – Mylan, Inc. – The global pharmaceutical company that develops and distributes generic, branded generic and specialty pharmaceuticals popped up on our ‘most active by options volume’ market scanner today after one options player sold a large chunk of August contract calls. Mylan’s shares are up nearly 2.00% to $18.00 as of 11:45 am ET after its shares were upgraded to ‘outperform’ from ‘market perform’ with a 12-month target share price of $22.00 at Sanford Bernstein. Despite the bullish move in share price and the ratings upgrade, one investor sold into the rally, shedding approximately 18,500 calls at the August $18 strike for premium of $0.30 per contract. Perhaps the responsible party is long an offsetting number of shares of the underlying stock, and is thus selling covered calls to take in available premium. If this is the case, the investor is willing to have the underlying shares called from him at $18.00 each. Conversely, if the trader is not long the underlying stock, the sale of the calls is an unlimited risk strategy that could result in substantial losses. In this scenario, the investor starts to incur losses if Mylan’s shares rally above $18.30 and the calls of which he is short are uncovered. Options implied volatility on MYL slumped 7.5% lower to 28.92% by 12:00 pm ET.
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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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