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AmerisourceBergen Corp. (ABC) and the $9 Million Bullish Bet

Can AmerisourceBergen Corp. maintain its newfound perch atop $75?

by 8/4/2014 11:57 AM
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A huge short-term wager has been placed on AmerisourceBergen Corp. (NYSE:ABC) -- to the tune of more than $9 million -- and it appears one option trader is betting big that the stock will extend its newfound perch atop $75 following last week's earnings-induced surge. Taking a quick step back, though, ABC calls are trading at 198 times the average intraday pace today, and are outstripping puts by a margin of 188-to-1. Short-term contracts are in high demand, per the equity's 30-day at-the-money implied volatility, which has surged 8.8% to 17.5%.

Almost all of the day's call action has centered on the August 75 strike, where two massive blocks totaling 40,000 contracts changed hands shortly after the open at the respective ask prices of $2.30 and $2.35. According to Trade-Alert, this was opening activity, and given that each block consisted of 20,000 contracts, the total cash outlay for today's call buyer is $9.3 million (number of contracts * premium paid * 100 shares per contract).

This also represents the maximum potential risk, should ABC settle south of $75 at next Friday's close, when front-month options expire. Gains, meanwhile, are theoretically unlimited with each step north of breakeven the stock takes, with breakeven being calculated by taking the strike price plus the premium paid ($77.30 and $77.35, in the case of today's call buyer).

On the charts, AmerisourceBergen Corp. (NYSE:ABC) has done little to warrant such a bold bullish bet, with the stock sitting about 9.6% higher year-to-date. However, last week's well-received quarterly earnings report and subsequent round of bullish brokerage notes sent shares of ABC through previous congestion in the $74 area, and at last check, the stock was trading at $77.06.


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