CHICAGO (TheStreet) --Shares of Eli Lilly (LLY) are on the rise during midday trading without any news from the pharmaceutical product manufacturer.

At least one investor could be betting the stock will drop longer term, judging from heavy put volume on the tape so far today.

LLY has gained more than 1%, or roughly 36 cents, to $32.73 so far on the day. The company has not announced its next earnings release date, but the market expects the report around July 22.

The January 2011 31 puts were active during midday trading thanks to an investor who appeared to have bought them on the expectation that the stock would head toward new lows during the next several months. But a closer look at the trade could show the investor is betting more on volatility than direction.

Around 11:33 a.m. EST, a block of roughly 5,000 January 2011 31 puts crossed the tape for $2.40 per contract, which was the ask price at the time of the trade. These out-of-the-money (OTM) puts are home to current open interest of 537 contracts, indicating the investor most likely bought these options to open on a bearish bet that the stock could be trading lower than $28.60 at January 2011 options expiration.

The investor could make significant but limited gains on this trade if LLY shares drop at least 12% throughout the longer-term (the investor continues to make money until the unlikely event that the stock drops to zero). If LLY shares remain around their current level or do not drop below the breakeven price, this long put trade caps any losses at the premium paid, or $2.40 per contract.

At first glance, this trade appears very bearish; it probably is. But a closer look shows that these options traded with stock, meaning that the put buyer simultaneously bought LLY shares.

A look at the time and sales in LLY shows that roughly 184,800 shares traded for $32.75 at 11:33 a.m. (when the block of puts crossed the tape). This number of shares is roughly how many market makers would need to sell to make this trade delta neutral.

The fact that the investor executed a delta-neutral trade could mean that they are more interested in betting on volatility than direction. The $2.40 premium of the puts with stock at $32.75 equates to an implied volatility of approximately 28%. The 30-day historical volatility of the stock is roughly 18%.

If this investor thinks that LLY will become more volatile, then purchasing options on an implied volatility of 28% should make money for the investor if they are hedged daily until expiration.

-- Written by Jud Pyle in Chicago

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."