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What's behind put buying in Auxilium

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Auxilium Pharmaceuticals continued to rally on Friday even as the broader market fell, but option traders remain cautious.

optionMONSTER's Depth Charge system shows that 2,000 September 15 puts were bought for $1.50 and $1.60. The volume was well above the strike's open interest of 1,124 contracts before the session began, indicating that these are new positions.

These puts, which lock in the price where shares can be sold, were not tied to any stock trading identified by our systems on Friday. They could have been bought to protect existing long positions or to make speculative bets that the stock will fall by expiration in mid-September. (See our Education section)

AUXL closed Friday at $17.38, up 2.48 percent on the session and more than 15 percent since starting the month at $15.02 but down 41 percent from its 52-week high of $29.37 from last July. The drug developer dropped to $14 on April 29 after announcing first-quarter results and the acquisition of urology-product marketer Actient for $585 million, but shares have been climbing sharply in the last two weeks.

Mizuho initiatiated coverage on Auxilium on Friday with a "buy" rating and a $28 price target. In the previous week, Leerink Swann upgraded the name to "outperform" from "market perform" and raised its price target to $21 from $16. Analysts have cited optimism over prospects for approval of Auxilium's Xiaflex treatment for Peyronie's disease

Total option volume in the name was 3,058 contracts on Friday, nearly quadruple its daily average for the last month. Puts outnumbered calls by more than 5 to 1.

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