Human Genome Sciences (HGSI) is up 12 cents to $3.46 and 22K calls traded today, which represents 5X the expected for midday trading. January 2010 calls at the $10 line are the most actives. More than 10K traded and nearly all traded bid-side. In addition, a block of 220K HGSI shares at $3.55 also traded in recent action. So, some investors might be selling premium (Jan 10 calls for 50 cents) against HGSI shares as part of a buy-write strategy.

Recall that, in a buy-write, the strategist normally sells 1 call for every 100 shares. In this case, the investor is selling a call for 50 cents ($50 because the multiplier is 100) and buying shares for $3.55. The cost basis, per share, falls to $3.05; which becomes the downside breakeven through the expiration. The upside is to $10 (228 percent). If shares, move beyond that level, the calls will be assigned and the strategist must deliver HGSI at $10 per share.

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