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Most Active Options Update: Gilead Sciences, Inc. (GILD)

Gilead Sciences, Inc. calls have been popular leading up to tonight's earnings report

by 4/22/2014 2:14 PM
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The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest this afternoon is Gilead Sciences, Inc. (NASDAQ:GILD).


Gilead Sciences, Inc. will take its turn in the earnings confessional after tonight's close, and in the two weeks leading up to the big reveal, option traders have shown a preference for long calls over puts. During the past 10 sessions, the stock has tallied a call/put volume ratio of 2.32 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). What's more, this ratio ranks in the bullishly skewed 60th percentile of its annual range, meaning calls have been bought to open over puts at a faster-than-usual clip.

It's more of the same in today's session, where calls have the slight lead over puts. A number of traders have targeted the May 75 call, where the majority of the 2,993 contracts traded have done so at the ask price -- pointing to buyer-driven volume. Meanwhile, implied volatility (IV) is up 2.4 percentage points, hinting at the initiation of new positions. The volume-weighted average price (VWAP) for the calls is $1.94, making breakeven at expiration -- on Friday, May 16 -- $76.94, or the strike plus the VWAP. Risk is limited to the initial cash outlay.

Meanwhile, one contract of interest to us falls on the put side -- at the May 60 strike, to be exact. More than 6,400 contracts are on the tape here -- 70% at the ask price. However, data from the ISE confirms that a number of these positions have been bought to close. These traders appear to be disregarding the rising cost of premium ahead of tonight's earnings announcement. Specifically, IV at the May 60 put exceeds the equity's one-month historical volatility (53.0% vs. 44.6%), meaning premium is inflated at the moment. The general assumption is that IV will drop once the company unveils its quarterly results.

Looking at the numbers shows that the equity's price action in the wake of its earnings report tends to favor bulls. After matching or exceeding consensus profit estimates in six of the past eight quarters, GILD has gone on to average a gain of 2.8% and 2.2% in the subsequent day and week, respectively. For the company's first quarter, analysts project a profit of 91 cents per share -- nearly double GILD's year-ago earnings.

Elsewhere on the fundamental front, Gilead Sciences, Inc. (NASDAQ:GILD) announced yesterday that the Food and Drug Administration (FDA) had approved two of the company's New Drug Applications. The review dates have been penciled in for Oct. 3 and 4. This news has overshadowed an overnight price-target cut at Jefferies, with the equity up 2.1% at last check to linger near $73.09.


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