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Option traders eye biotech stocks after ImClone news
CHICAGO (Reuters) - Investors scrambled on Thursday for options on several pharmaceutical and biotechnology stocks, with many betting on future gains in the sector following news of a proposed buyout of ImClone Systems.
Earlier in the day, Bristol-Myers Squibb Co (BMY.N) offered to buy out the remaining stake in biotech partner ImClone Systems Inc IMCL.O.
News of the deal triggered a flurry of option activity in
Amgen Inc(AMGN.O), Onyx Pharmaceuticals Inc (ONXX.O) and Amylin Pharmaceuticals Inc (AMLN.O), said option strategist Frederic Ruffy at Web site WhatsTrading.com.
All these stocks saw heightened activity in their call options, enabling investors to buy their underlying shares at a given price and time. The volume far outstripped their respective puts, which convey the right to sell the stock at a predetermined price and time, according to option analytics firm Trade Alert.
"We are seeing a similar pattern in all of these stocks in which investors are buying at-the-money and just out-of-the-money calls in a speculative fashion with the expectations that the entire sector is about to turn very bullish," said Joe Kinahan, chief derivatives strategist at online brokerage thinkorswim Inc.
Some players bought upside calls on speculation about which company might be next, Ruffy said.
The unsolicited offer for ImClone marks the latest in a spate of pharmaceutical-biotech deals, including Roche Holding AG's (ROG.VX) recent $43.7 billion bid for the part of Genentech Inc DNA.N it doesn't already own.
VOLUME DOUBLES
The exchange-traded fund iShares Nasdaq Biotech Index IBB.A, which includes Amgen, Teva Pharmaceuticals and Celgene among its components, experienced double its normal option volume with 11,000 calls traded, compared with 5,700 puts.
IBB shares rose 2.12 percent to $88.99 after reaching a 52-week high at $89.76 as some option traders appeared to be jockeying for a break of $100 and beyond in the fund by year's end, Interactive Brokers Group options analyst Rebecca Engmann Darst said in a research note to clients.
Darst noted fresh buying in the December $100 IBB strike calls, conveying the right to buy the fund at $100 by December 19. New buying also hit the January $105 call line, suggesting many traders were banking on future gains for the sector as a whole into 2009, she said.
Although the IBB August $85 puts were the most active options, most of the 3,797 contracts traded bid side, suggesting some players were scrambling to close out puts as the IBB shares ran higher, Ruffy said.
In all, option volume topped its recent daily average of 546,000 contracts in the pharmaceutical and biotech sector, Trade Alert data showed. About 512,000 calls had traded for the day, compared with 409,000 puts.
(Reporting by Doris Frankel; Editing by Jan Paschal)
