NEW YORK (TheStreet) -- Eli Lilly (LLY) reported mixed results from third-quarter earnings last week. The company reaffirmed 2012 guidance in spite of abysmal performance of their top drug Zyprexa and several other drugs losing patents next year. Despite these headwinds, the company has rewarded shareholders with a stock up over 20% year-to-date and a hefty dividend yield of 3.8%.
As the end of the year approaches, I think investors may seek to lock in Lily stock gains or aggressively sell calls against their positions. As such, I believe Lilly's stock price has topped out for the year with the strong possibility of a small sell off and range-bound trading between $47 and $52.50 per share over the next several weeks.
Here's a short-term bearish options trade that doesn't cost very much (or costs nothing) to take advantage of the Lilly situation:
Buy 20 NOV 47.0 strike Puts @ 0.24 = $480
Sell (20) NOV 48.0 strike Puts @ 0.39 = $(780)
Sell (20) NOV 49.0 strike Puts @ 0.63 = $(1,260)
Buy 20 NOV 50.0 strike Puts @ 1.00 = $2,000
Sell (10) NOV 52.5 strike Calls @ 0.44 = $(440)
Initial Trade P&L = $0
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV