Bearish Player Prescribes Dose of Pessimism on Alexion Pharmaceuticals

ALXN – Alexion Pharmaceuticals, Inc. – The implementation of a three-legged bearish options combination play on the maker of therapeutic products this morning suggests one strategist may be bracing for the price of the underlying stock to fall by January 2011 expiration. ALXN shares are currently down 0.35% to arrive at $68.17 as of 11:35 a.m. in New York. The investor sold 2,000 calls at the January 2011 $75 strike at a premium of $2.40 each, purchased the same number of puts at the lower January 2011 $60 strike for a premium of $2.50 per contract, and sold 2,000 puts at the January 2011 $50 strike at a premium of $1.00 apiece. The trader receives a net credit of $0.90 per contract on the transaction, and keeps that amount as long as shares trade below $75.00 through expiration day. Additional profits start to accumulate if Alexion’s shares decline 12.00% from the current price of $68.17 to breach the $60.00-level by expiration day. Maximum potential profits, including the net credit received, of $10.90 per contract are available to the investor should the pharmaceutical firm’s shares plummet 26.65% and trade below $50.00 by January expiration. The short call position exposes the investor to potentially devastating losses in the event that ALXN shares fly upward to exceed the effective upper breakeven price of $75.90 by expiration day next year. Alexion Pharmaceuticals is slated to report third-quarter results ahead of the opening bell on October 21, 2010.

About Andrew Wilkinson 1023 Articles

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.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

Visit: Interactive Brokers

Be the first to comment

Leave a Reply

Your email address will not be published.