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Option Bulls Swarm Intuitive Surgical, Inc. (ISRG)

Intuitive Surgical, Inc. calls are hot after an FDA nod

by 4/1/2014 3:05 PM
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Option Brief: Intuitive Surgical, Inc. (NASDAQ:ISRG) is leading the charge higher today, up 12.2% to trade at $491.75. Earlier in the session, the stock peeked north of $500, topping out at $503.31. Bolstering the equity was a nod from the Food and Drug Administration (FDA), which approved the company's da Vinci Xi robotic surgery system. What's more, short-term options traders are rolling the dice on even more upside for ISRG, with intraday call volume running at about five times the norm.

The stock's 30-day at-the-money implied volatility (IV) was last seen 0.2% higher at 47.6%, and touched a 52-week peak earlier today, reflecting the growing demand for short-term contracts. So far, roughly 10,000 calls and 3,900 puts have traded, with the weekly 4/4 520-strike call and April 445 call most active, each seeing around 850 contracts traded.

The majority of the calls at both strikes crossed on the ask side, suggesting they were bought. Plus, volume has surpassed open interest at the weekly strike, and IV is trending higher on the front-month call -- both signs of fresh initiations. The 520-strike calls traded at a volume-weighted average price (VWAP) of $2.75, while the 445-strike calls changed hands at a VWAP of $45.78.

By purchasing the 520-strike calls to open, the buyers expect ISRG to be sitting atop $522.75 (strike plus VWAP) -- which would mark a new annual high -- by Friday's close, when the options expire. Meanwhile, the buyers of the April-dated calls will make money if ISRG is north of $490.78 at the close on Thursday, April 17, when front-month options expire. Risk, meanwhile, is limited to the initial premium paid for the contracts, should the shares fall short of the respective strike prices.

In light of Intuitive Surgical, Inc.'s (NASDAQ:ISRG) rally, delta on the weekly 4/4 520-strike calls jumped to 0.16 from zero, suggesting the contracts have a roughly 16% shot of expiring in the money. Delta on the April 445 calls, meanwhile, surged to 0.88 from 0.45, implying about an 88% chance of an in-the-money finish.


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