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Option Brief: A successful late-stage clinical trial of the hepatitis C drug Sapphire-II has AbbVie Inc (NYSE:ABBV) shares trading 2.2% higher today at $52.33. Earlier, the stock even hit a record high of $54.13. Not surprisingly, activity in the options pits has also picked up, especially on the call side, where volume is running at a more than eight-fold mark-up to typical intraday levels.
Of the roughly 24,000 calls that have crossed the tape, about one-quarter belong to a single strike -- namely, ABBV's December 52.50 call. The majority of the 5,866 contracts traded at the strike have gone off at the ask price, implied volatility is 5.1 percentage points higher, and information from the International Securities Exchange (ISE) confirms the initiation of new long positions.
By purchasing the calls, today's traders anticipate ABBV will muster a move back atop $52.50 by the close next Friday, when the options expire. However, the speculators won't begin to profit until the shares break north of $53.48 -- that is, the strike price, plus the volume-weighted average price of $0.98 paid for each contract. If these AbbVie Inc (NYSE:ABBV) options expire out of the money, the most today's bulls will part with is their initial cash outlay.