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
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