Wednesday, August 10, 2011

Trade of the Day: Teva Pharma December $40/$47.50 call spread

The Trade
Trader bought the December $40 call and sold the December $47.50 call 5,000x for a debit of $1.92. Maximum risk is $960,000, the total debit. Profit potential is limited to $2,790,000 with a move to $47.50 or more.

The trade is bullish, looking for a break above $42 to break even. With the recent sharp sell-off, shares are down about 20% and have reached 2008 lows. The chart below shows this.

The $37 billion generic drug maker, with its recent acquisition of Cephalon, trades 7x earnings, 1.5x book and 9.9x cash flow with 2.2% dividend yield. Short interest is down as well.

*Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

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