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AstraZeneca Sees Bearish Move

At least one investor made an options play to hedge against a further decline in the stock.
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) -- Shares of


(AZN) - Get Free Report

have declined around nine cents to $43.46 so far on the day, and it appears as if at least one investor expects the stock could slide further between now and July.

AZN was the center of attention on Feb. 19, as the company reportedly still has plans to acquire



. Then today, the company raised its forecast for 2010 earnings after settling a tax dispute with the British government, according to published reports.

Around 10:30 a.m. EST, an AZN investor sold off potential upside in the stock to decrease the cost of downside protection in a July-collar spread. The investor bought the July 40-50 risk reversal 5,000 times, buying the out-of-the-money July 40 puts for $1.35 per contract and selling the out-of-the-money July 50 calls for 60 cents per contract. The net cost of this risk reversal was 75 cents per spread.

The July 40 puts are home to current open interest of 1,000 contracts, while the July 50 calls are home to current open interest of 4,200 contracts, indicating the investor most likely initiated the trade to open.

AZN shares, which reached a high of $50.70 on Jan. 21, are currently trading roughly 14% off their highs. The stock has rallied nearly 45% since its March low of roughly $30 per share. While the options action we saw in AZN suggests bearishness, this could also be an investor who is long the shares and hedging that position after the run in stock. If that is the case, then this investor makes the most money if the stock rallies because they are long the shares against the collar.

-- Written by Jud Pyle in Chicago

At the time of publication, Pyle did not have a position in the stock mentioned. Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."