Airgas Inc. (NYSE: ARG )
shares are trading roughly 1% higher today to around $64.60. The
catalyst for the rally is the fact that Air Products (
) announced this morning that it raised its hostile bid for their
rival to $63.50 from $60. As we so often see with hostile bids,
shares of ARG are currently trading higher than the deal price, on
anticipation of higher bids in the offing.
Despite the rally in the shares however, we see the prices of
some calls declining, thanks to sellers prevalent in the market.
Looking at the August 65 calls, we see that more than 13,000 of the
contracts had traded by 1 p.m. EST. The average price of the
options by that time was roughly $1.08. Yet these options closed
last night at a price of $1.30. Stock up, calls declining in price,
that's a seller folks.
Given that these options have a delta of between 40 and 50, the
options should have rallied at least 30 cents, and be trading near
$1.60. But the sellers have reduced the implied volatility. Last
night, the price of $1.30 translated to an implied volatility of 20
versus a share price of $63.87. At 1 p.m. EST the options were
trading for around $1.15, which is an implied volatility of less
Looking at the open interest in the Aug 65 calls, we see that it
stood at 9,090 this morning. Some of this volume could be a long
call owner selling out his supply to close. This is investor is
effectively giving up on a bet that ARG shares will be higher than
$65 come August expiration.