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Are Amgen Option Traders Switching Sides?

Despite AMGN's uptrend, today's appetite for calls marks a change of pace

by 10/16/2012 2:08 PM
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Biotech concern Amgen, Inc. (NASDAQ:AMGN - 87.76) has seen a relatively rare pop in call volume today. In afternoon action, the security has seen roughly 5,100 calls change hands -- more than double its average intraday call volume. On the flip side, fewer than 2,700 AMGN puts have been exchanged.

Most active has been the in-the-money November 85 call, which has seen almost 1,000 contracts traded -- mostly at the ask price, hinting at buyer-driven volume. Plus, implied volatility on the front-month call was last seen higher, suggesting traders are establishing new positions. By purchasing the calls to open, the buyers are betting on AMGN to extend its upward momentum over the next couple of months. Specifically, the volume-weighted average price (VWAP) of the calls is $3.71, meaning the buyers will profit if AMGN conquers the $88.71 level (strike plus VWAP) -- which would mark a record high for the equity.

As alluded to earlier, today's appetite for bullish bets marks a change of pace among AMGN speculators, despite the stock's impressive price action in 2012. In fact, on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.34 sits just 20 percentage points from a 52-week peak. In other words, option buyers have initiated bearish bets over bullish at a faster pace than usual during the past two weeks.

As a result, the equity sports a Schaeffer's put/call open interest ratio (SOIR) of 1.50, indicating that puts comfortably outnumber calls among options with a shelf-life of three months or less. What's more, this ratio registers in the 92nd percentile of its annual range, implying that near-term traders have rarely been more put-heavy during the past year.

Elsewhere, the brokerage bunch is also wary of AMGN, as fewer than half of the analysts following the stock have doled out "buy" or better endorsements. In the same vein, the average 12-month price target on the equity rests at $89.67 -- just a hair's breadth from AMGN's new all-time peak of $87.97, tagged earlier today.

Should AMGN extend its quest for new highs, or should the company report stronger-than-anticipated earnings next Tuesday, Oct. 23, the skepticism surrounding the shares could work to their advantage. An unwinding of pessimism in the options pits, or a wave of upbeat analyst attention, could translate into contrarian tailwinds for AMGN.


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