Allergan, Inc. (AGN) operates as a multi-specialty health care company primarily in the United States, Europe, Latin America, and the Asia Pacific. This stock has been on fire recently and is breaking through its 52 Week highs. Today we saw a very interesting trade where a trader bought 1,000 AGN July 140 calls for $5.84 and then sold 1,000 July 115 puts to reduce the cost of the trade. This is known as a “risk reversal.” A trader will get long 100,000 shares at two different levels: $115 and $140. This trader has a breakeven at $142, but let’s break this down a little further.
The Trade: Trader bought 1,000 AGN July 140 Calls and Sold July 115 Puts for $2.00 debit
Their Risk: $117,000
Their Reward: Unlimited
Breakeven: $142
Between $115-$140: Trader will lose Cash outlay of $200,000
Under $115 and Above $140, Trader will become Long 100,000 Shares of Stock