Buyout Buzz Brings Out St. Jude Medical, Inc., Thoratec Corporation Bulls

St. Jude Medical, Inc. (NYSE:STJ) and Thoratec Corporation (NASDAQ:THOR) are fresh off record highs, thanks to the latest M&A chatter

Jul 21, 2015 at 2:27 PM
facebook twitter linkedin


According to a Bloomberg report, St. Jude Medical, Inc. (NYSE:STJ) is holding talks about a potential purchase of Thoratec Corporation (NASDAQ:THOR). The buyout buzz has both healthcare stocks fresh off highs, and call volume accelerated.

Diving right in, THOR has soared 22.1% to trade at $59.58, and earlier notched an all-time peak of $62.05. The bullish gap also sent the stock's 30-day at-the-money implied volatility to a 52-week high of 60.7%, hinting at increased demand for short-term strikes. In fact, THOR calls are running at 27 times the average intraday rate, with potential buy-to-open activity transpiring at the out-of-the-money August and September 60 strikes. In other words, call buyers anticipate the shares will climb back above the round-number $60 level by the respective expiration dates.

One group that may be feeling the heat is short sellers. Thoratec Corporation's short interest ratio is 9.30, meaning it would take more than nine sessions -- at the stock's average trading volume -- to buy back the 3.6 million shorted shares.

Meanwhile, STJ -- which is slated to step up to the earnings plate bright and early tomorrow -- is sitting on a much narrower 0.7% gain, at $77.16. However, the stock did jump to a record high of $80.84 during the lunch hour -- perhaps explaining why calls are crossing at twice the normal afternoon rate, and over 10 times the pace of puts.

Looking more closely, St. Jude Medical, Inc. has seen potential buy-to-open action at its August 75 and 80 calls -- which are its two most active strikes. Long story short, these speculators are rolling the dice on an extended advance for the shares by the close on Friday, Aug. 21, when front-month options expire.

A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 
Special Offers from Schaeffer's Trading Partners