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Biogen Idec Traders Target Record Highs

BIIB speculators bought November-dated calls

by 10/12/2012 9:05 AM
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Call traders took a shine to Biogen Idec Inc. (NASDAQ:BIIB - 147.10) on Thursday, with single-session volume more than tripling the norm. By the closing bell, the drug maker had seen more than 5,400 contracts change hands, compared to its average daily volume of fewer than 1,500 calls. On the flip side, just over 1,000 BIIB puts crossed the tape yesterday.

Digging deeper, we find that most of the action centered on the out-of-the-money November 150 and 160 calls, which saw around 3,100 and 1,000 contracts traded, respectively. The majority of the calls crossed at the ask price, and call open interest soared at both strikes overnight, pointing to buy-to-open activity.

By buying the calls, the traders are anticipating a significant rally in the short term. Specifically, the volume-weighted average price (VWAP) of the 150-strike calls was $4.60, indicating a breakeven level of $154.60 (strike plus VWAP) for the buyers. Meanwhile, the VWAP of the 160-strike calls was $1.39, meaning the buyers will profit if BIIB conquers the $161.39 level within the next few weeks. However, even if the equity remains south of these strikes, the most the buyers can lose is limited to the initial premium paid for the calls.

Broadening our sentiment scope, it seems yesterday's preference for calls is par for the course. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open more than three BIIB calls for every put during the past two weeks. In fact, the equity's 10-day call/put volume ratio of 3.15 registers in the 81st percentile of its annual range, suggesting speculators have initiated bullish bets over bearish at a faster-than-usual rate.

Elsewhere, the analyst crowd is also optimistic when it comes to BIIB. Currently, the stock sports 11 "strong buys" and one "buy" endorsement, compared to eight lukewarm "holds" and not a single "sell" or worse rating. Plus, ahead of the bell today, UBS upped its price target on the equity to $160 from $156.

On the charts, the shares of BIIB have muscled more than 45% higher during the past year, touching a record peak of $157.18 just last month. Since then, however, the security has taken a breather, pulling back to its 80-day moving average -- a trendline that hasn't been violated in more than a year.

Fundamentally, the company this morning announced that new data from studies regarding its experimental BG-12, or dimethyl fumarate, pill further supports its safety and effectiveness in people with relapsing-remitting multiple-sclerosis. Later this month, the firm is slated to unveil its third-quarter earnings report. Historically, Biogen has topped Wall Street's bottom-line estimates in three of the past four quarters, according to Thomson Reuters -- which could be the catalyst behind the aforementioned affinity for November-dated calls.

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