Airgas (NYSE:ARG) investor sells upside

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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 ( APD ) 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 than 15.


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.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Options

Referenced Stocks: APD , ARG

Jud Pyle

Jud Pyle

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