Unusual trade is bullish on Targacept

optionMONSTER

Targacept reports earnings tomorrow, and one trader has opened an unusual put trade that is bullish on the pharmaceutical stock.

optionMONSTER's tracking systems detected the sale of 5,387 August 5 puts for $0.65 in about 1 minute on Friday afternoon. This is clearly a new position, as the strike's open interest was a mere 27 contracts before the trade appeared.

TRGT rose 2.63 percent on Friday to finish at $4.68, its highest close since mid-January. The drug developer is scheduled to release first-quarter results tomorrow before the market opens.

Friday's put seller will profit if TRGT is above $5 by expiration in mid-August. The trader will be on the hook to buy shares if they remain below that level, but the effective price would be $4.35 once the $0.65 credit from the put sale is factored in.

Traders sometimes like selling in-the-money puts instead of buying calls when they are looking to own shares at a lower price . If the stock rallies, they won't get to purchase the stock but can still profit from the premium earned in selling the puts. (See our Education section)

Friday's put sale made up almost all of the option volume in TRGT, which has averaged just 50 contracts per session for the last month.

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