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Boston Scientific Attracts Short-Term Call Buyers

BSX speculators are scooping up front- and back-month call options

by 11/26/2012 11:10 AM
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Option bulls are targeting Boston Scientific Corporation (NYSE:BSX - 5.75) this morning, with calls flying off the shelves. Already today, the medical device manufacturer has seen more than 8,500 calls cross the tape -- about 15 times its average intraday call volume, and nearly 10 times the number of BSX puts exchanged.

Most popular have been the December 6 and January 5 calls, which have each seen nearly 2,600 contracts change hands. Volume has exceeded open interest at the front-month strike, and implied volatility on the back-month calls was last seen more than seven percentage points higher -- both signs of new initiations. Plus, the majority of the calls have traded at the ask price, hinting at buyer-driven activity.

By purchasing the calls to open, the buyers are expecting BSX to extend today's advance over the next month or two. The volume-weighted average price (VWAP) of the December 6 calls is $0.11, meaning the buyers will reap a reward if BSX conquers the $6.11 level (strike plus average premium paid). Meanwhile, the VWAP of the longer-term calls is $0.79, indicating a breakeven level of $5.79. However, no matter what happens on the charts, the call buyers' maximum risk is capped at the initial premium paid for the options.

From a wider sentiment standpoint, though, today's appetite for short-term calls is just more of the same for BSX. The equity's Schaeffer's put/call open interest ratio (SOIR) stands at 0.26, indicating that calls nearly quadruple puts among options with a shelf-life of three months or less. What's more, this ratio sits at a 52-week nadir, implying that near-term options players haven't been more call-skewed during the past year.

On the other hand, most analysts remain wary of BSX. Currently, the stock sports six "buy" or better ratings, compared to 16 "hold" or worse suggestions. However, the sentiment tide could be shifting, if today's brokerage activity is any indication. This morning, Citi upgraded BSX to "buy" from "neutral," stating the stock is poised to be the biggest beneficiary should St. Jude Medical's (NYSE:STJ) Durata be pulled from shelves.

At last look, BSX has advanced 2.9% to wink at the $5.75 level. The shares have tacked on roughly 11.9% so far this month, and are on pace to end atop their 10-month moving average for just the second time since July 2011.


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