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Biogen Idec Inc. Traders Bet On a Trek Into Uncharted Territory

BIIB's April 210 call saw buy-to-open activity on Friday

by 4/15/2013 10:19 AM
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Biogen Idec Inc. (NASDAQ:BIIB) jumped more than 3% on Friday, and tagged a new record peak of $209 in the process. The positive price action wasn't lost on option traders, who scooped up 6,836 call contracts on the day -- nearly three times the average daily volume. By comparison, 2,322 puts crossed the tape. Short-term speculators eyed another trek into uncharted territory, and picked up the equity's April 210 call for a volume-weighted average price (VWAP) of $1.83. The majority of the 1,216 contracts traded here went off at the ask price, implied volatility ticked higher, and open interest rose over the weekend, making it safe to assume that new bullish positions were initiated.

By purchasing the out-of-the-money calls, traders expect Biogen Idec to land north of the $210 mark by Friday's close -- when front-month options expire. More specifically, the calls will be profitable with each step above $211.83 (strike plus VWAP) BIIB takes through week's end. This breakeven mark represents expected upside of 3.6% from the stock's current perch at $204.50. At last Friday's close, delta for the call was docked at 0.36, or 36%, suggesting a roughly 2-in-5 chance the position will land in the money by expiration.

Given that Biogen Idec has rallied roughly 40% year-to-date, Friday's preference for calls only builds on a recent trend. During the course of the past 10 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 4,984 calls, compared to 1,680 puts. The resultant call/put volume ratio of 2.97 ranks higher than 86% of other such annual readings, pointing to a healthier-than-usual appetite for long calls over puts in recent weeks.

As mentioned, Biogen Idec Inc. (NASDAQ:BIIB) has had a tremendous run on the charts in 2013. This upward momentum has been highlighted by the stock's 10- and 20-day moving averages, which have been ushering BIIB northward since late January. Friday's impressive price action came on the heels of another bullish brokerage note, in which UBS raised its price target for BIIB to $208 from $200.


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