Options traders are picking up calls on
Merck & Co., Inc.
) at a rapid-fire rate today. Specifically, 21,000 calls -- nearly
three times the intraday norm and six times the number of puts --
have crossed the tape thus far.
Most of MRK's traders have focused their attention on the November
50 call, where more than 10,200 contracts have changed hands for a
volume-weighted average price (VWAP) of $0.49. More than
three-fourths of the contracts -- including several mid- to
large-sized blocks -- went off at the ask price, implied volatility
has ticked higher, and volume has exceeded open interest at the
strike, suggesting the initiation of fresh long calls. In addition,
data from the International Securities Exchange (ISE) confirms some
of this activity was of the buy-to-open sort.
In order for today's call buyers to profit from their plays, MRK
has to travel into territory last reached in January 2008.
Specifically, the stock has to climb at least 5.4% from its current
perch of $47.90 to finish atop the breakeven rail of $50.49 (strike
price plus the VWAP) by the close on Nov. 15, when back-month
options expire. As of now, the call has a roughly 1-in-4 chance of
making its way into the money during its lifetime, according to its
delta of 0.27, or 27%.
The initial cash outlay for this out-of-the-money call is
relatively expensive, considering the call's implied volatility of
18% towers over MRK's two-month historical (realized) volatility of
7.8%. Should MRK fail to advance past the $50 mark over the next
seven-plus weeks, this somewhat inflated premium is what today's
call buyers stand to lose.
On the technical front, Merck has tacked on more than 17% since the
start of 2013, and is up 0.5% at last check on news that
Oxytrol was released
nationwide yesterday, becoming the first over-the-counter treatment
for overactive bladder in women. Of note, MRK is scheduled to
report fiscal third-quarter earnings between Oct. 21 and Oct. 25.
While the drug maker bested consensus bottom-line estimates in all
of the last eight quarters, its shares still fell, on average,
0.82% the following week.
This article by
was originally published on
Schaeffer's Investment Research
Below, find some more great content from Schaeffer's Investment
Chart of the Day: The Walt Disney Company (
What Are the Keys to Being a Successful
Alcatel Lucent SA (ADR) (
) Traders Optimistic on Tie-Up News