Playing an Earnings Trend in Auxilium

A large amount of success in trading earnings comes from recognizing when a
trend in the earnings history of a stock marries with its current technical
picture to provide an opportunity to profit from an upcoming announcement. This
is the case with a company that has crossed our screens a few times over the
last week. Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL ) is a specialty
biopharmaceutical company operating primarily in the United States. It focuses
on developing and marketing products to urologists, endocrinologists, primary
care physicians, hand surgeons, and rheumatologists, as well as to orthopedic,
general, and plastic surgeons. The company has had mixed earnings results over
the last year, beating expectations two out of the last four quarters. Despite
this, the stock price has moved lower after its successful earnings
announcements. The stock is clearly seeing some "sell the news" pressure
after results are released. Find more option analysis and trading ideas at
Options Trading Strategies . Healthcare and pharmaceutical stocks have been on
our bullish list for months as the sector has been outpacing the market, but our
proprietary indicators are suggesting that AUXL is due for some selling,
regardless of the earnings calendar. The stock recently posted relative highs
around $25, the third time since January. This "triple top" should be
considered a site of resistance for the shares. Other signs, such as the current
open interest configuration and the number of call options open at $25, suggest
that the crowd is a bit too optimistic that the stock will break through $25.
This is often a precursor to sellers taking profits. In addition, shorts have
been reducing their positions ahead of earnings, meaning the possibility is
small that there will be a rally after the report caused by shorts covering
their positions. With earnings approaching on May 9, we think that now is the
time to prepare for a short-term run back towards the $20-$21 price range, a
move that we feel will be exaggerated by the upcoming earnings results. Options
traders will benefit from such a move by buying the AUXL May 25 Puts . These
options are currently trading in the neighborhood of 1.70 and would appreciate
to a value of around $4.00 if the stock hit our price target of $21 shortly
after the earnings call. Money-Doubling Options Trades from Earnings Hits &
Misses Learn how to cut through the rumor and manipulation surrounding corporate
earnings announcements and bank money-doubling option trades all year long.
Download our FREE trading guide here .