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Forest Laboratories, Inc. (FRX) Speculators Place Well-Timed Bets

Long-term out-of-the-money calls were active in Forest Laboratories, Inc. options pits Friday

by 2/18/2014 10:13 AM
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Option Brief: Forest Laboratories, Inc. (NYSE:FRX) is dominating the headlines today, as the pharmaceutical name has become an acquisition target. In Friday's trading (ahead of this news, which broke yesterday), the stock was targeted by options players, particularly on the call side. In fact, total call volume more than tripled what is typically seen on an average trading day.

Accounting for roughly three-quarters of the day's volume was the January 2016 90-strike call, which saw a block of 5,000 contracts trade near the ask price at $5.10 apiece shortly before 2 p.m. ET. Implied volatility rose at the time of the trade, and open interest surged by 5,016 contracts over the weekend, indicating buy-to-open activity.

In its roughly 20-year trading history, FRX has never traded above $90, but hit this level this morning on news of a $25 billion buyout offer from Actavis PLS (NYSE:ACT). Out of the gate, the stock zoomed nearly 30% higher to tag the $92.80 mark, and has since moved as high as $93.50. The aforementioned LEAPS call option currently carries an ask price of $13.60, nearly triple the purchase price from Friday afternoon.

Bullish options speculation in the Forest Laboratories, Inc. (NYSE:FRX) options pits wasn't widespread ahead of this announcement, however. The stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 5.48 ranks in the 55th annual percentile. In other words, recent demand for long calls (compared to long puts) has not been out of the ordinary over the last two weeks.


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