Eli Lilly Still Range-Bound Despite a Bet Otherwise

by Chris McKhann

Eli Lilly (LLY) shares have been range-bound for more than six months, but one trader is betting that the sideways movement will end in the not-too-distant future.

LLY dropped 1.17 percent during the day to close at $33.03. The price has been bouncing between $32 and $36 since late March after hitting lows just above $27 back in March.

The trading consisted of two spreads, a call spread in April and a put spread in January, both within seconds of one another. The call spread involved 5,000 of the April 30 calls bought for $3.80 and the April 35 calls sold for $1.25.

The volume was more than 5 times open interest at both strikes, indicating new opening positions. The debit for the spread of $2.55 is the maximum risk, while the trade will make $2.45 if LLY is above $35 in April.

This trader also bought 5,000 of the January 35 puts for $3.50 and sold the January 30 puts for $0.90. The net debit on this trade was $2.60, but it likely represented closing positions. First, the open interest at both strikes was more than 12,000 contracts. Second, if these trades were done together as new positions, then the trader would be paying out $5.15, with a maximum profit of $5.

So it looks as though this trader closed a bullish credit spread in the January puts to buy the bullish call spread in April.

(Chart courtesy of tradeMONSTER)

Comments

[TMJFINL:]

All well and good for the trader who is betting on LLY! I am betting on ARIAD PHARMA- ARIA @ $2.08 . Look at it as a $2.00 option w/o any end date. 2 new promising cancer therapies and a reversal in the infringement suit against LLY to be heard by an Appeals Court in the near future. Appears to be a recipe for significant cap. gains.

Oct 02 08:57 AM