Eli Lilly Sees Put Selling on Expiration Friday

At least one investor is calling limited downside in healthcare name Eli Lilly & Co. (LLY) and expressing that bet by selling puts days ahead of the company’s earnings announcement.

Looking at the January 33 puts in LLY, more than 7,700 of these options have traded versus open interest of 248 contracts, indicating investors traded these puts to open. The volume-weighted average price of these puts is around $1.15. The January 33 puts are currently trading down eight cents on the day with a 38-delta.

LLY shares, currently up down eight cents on the day, have rallied 25% since reaching a recent low of $27.47 in March. It looks like the investor is betting the stock will hold higher than $31.85, which is the break-even on this trade. This represents a very slight drop from current levels, but this is the reason we call this trade moderately bullish. The investor does not need the stock to go higher to make the $1.15, just to not go below $33.

We expect LLY to announce earnings figures on Wednesday, and it is interesting that at least one investor sees limited downside and believes the stock could hold around its current levels after the company’s quarterly report.

Put selling like this is a sign of moderate bullishness, and could be an example of how risk aversion is abating in the market. The investor is willing to cap his gain at $1.15 if the stock remains higher than $33, which explains why this trade banks on limited upside and limited downside.