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Rumors are swirling about a possible Bristol-Myers Squibb Co (NYSE:BMY) takeover of Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN). While the buzz has traders targeting ACHN calls, puts are being exchanged at five times the normal intraday pace in BMY's options pits. Against this backdrop, the stock's 30-day at-the-money implied volatility has risen 3% to 19%, suggesting elevated demand for short-term contracts.
Diving into the details, however, BMY's most active strike is the longer-term December 45 put, where nearly 9,000 contracts are on the tape. Roughly two-thirds of this volume crossed as a block when -- according to the International Securities Exchange (ISE) -- a trader bought to open 6,202 contracts in one fell swoop, at an ask price of $1.17 apiece. In so doing, this individual laid out a total of $725,634 (premium paid * number of contracts * 100 shares per contract) for his bearish bet.
On the one hand, the put buyer will profit at expiration if BMY is lodged below $43.83 -- or the strike less the premium paid -- with additional profits accruing on a move all the way to zero. On the other, the most he will lose is the initial cash outlay, should the equity finish at or above the strike at the close on Friday, Dec. 19, when the contracts expire.
On the charts today, Bristol-Myers Squibb Co (NYSE:BMY) is following the broad-market trend lower, off 1.2% at $50.02. Regardless, since hitting a year-to-date low of $46.30 in early June, the shares have tacked on 8%. What's more, peak levels of front-month put open interest are located at the August 50 strike, which may increase the chance that the shares may find a short-term level of support at the half-century mark.