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Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN)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.

CBS Corp. (NYSE:CBS) The media company popped up on our ‘hot by options volume’ market scanner in the first half of the trading session after one investor booked profits on a previously established bullish position. Shares of the mass media company are currently flat on the day at $17.90 as of 11:45 a.m., but earlier rallied 1.675% to touch a new 52-week high of $18.20. The firm’s shares have surged 39.9% to $18.20 since reaching a 3-month low of $13.10 on August 25, 2010. It looks like the investor originally purchased 4,000 calls at the October $17 strike at an average premium of $0.35 each back on September 13, 2010, when CBS Corp.’s shares were trading around $15.69. The subsequent appreciation in the price of the underlying shares significantly increased premium on the calls, which are now trading in-the-money. Thus, the investor sold all 4,000 lots today for a premium of $1.10 each to pocket net profits of $0.75 per contract. It appears the same trader is also positioning for the media company’s shares to climb higher by scooping up a fresh batch of 4,000 calls at the higher November $20 strike at a premium of $0.25 a-pop. The investor makes money on the new position if shares in CBS Corp. rally another 11.25% over today’s high of $18.20 to trade above the effective breakeven point at $20.25 by November expiration. CBS Corp. is scheduled to report third-quarter earnings after the final bell on November 4, 2010.

Repsol YPF, SA (REP) Shares of the Madrid, Spain-based oil and gas company are up 0.50% to stand at $27.85 as of 12:10 p.m., but options activity in the April 2011 contract this morning indicate one strategist is prepared for the price of the underlying stock to decline. The three-legged bearish combination play transacted on REP today follows news that the European Commission, the regulatory arm of the EU, plans to propose broader liability rules and stricter standards for offshore drillers in order to improve safety in the petroleum industry post-BP catastrophe. The options trader responsible for the pessimistic position sold 3,382 calls at the April 2011 $30 strike at a premium of $1.30 each, purchased the same number of puts at the April 2011 $25 strike for a premium of $1.80 per contract, and sold 3,382 puts at the lower April 2011 $20 strike at a premium of $0.40 apiece. Net premium paid to establish the spread amounts to just $0.10 per contract. The trader is poised to profit, or realize downside protection, if REP’s shares fall 10.6% from the current price of $27.85 to breach the effective breakeven point to the downside at $24.90 by expiration day in April. Maximum potential profits of $4.90 per contract pad the investor’s wallet should shares of the oil company plunge 28.2% to trade below $20.00 by expiration. Options implied volatility on the stock is up 5.3% at 36.03% as of 12:20 p.m.

Great Atlantic & Pacific Tea Co., Inc. (GAP)Put options on the operator of supermarkets are a hot commodity today with shares of the underlying stock falling as much as 21.1% this morning to secure an intraday low of $3.14. The company reveals second-quarter results before the market opens on October 20, 2010. Investors looking for shares to tumble lower scooped up some 4,600 puts at the May 2011 $2.0 strike for an average premium of $0.50 each. Put buyers make money if GAP’s shares plunge 52.2% lower to trade beneath the effective breakeven price of $1.50 each. From that point, traders may pocket maximum potential profits of $1.50 per contract in the event that shares collapse down to $0.00 by expiration in May 2011. The significant erosion in the price of GAP’s shares, increased demand for put options on the stock and impending earnings have lifted the overall reading of options implied volatility on the supermarket operator 51.9% to 123.13% as of 12:35 p.m. in New York.

Source: Wednesday Options Brief: ALXN, CBS, REP & GAP