Why Lilly's Pain Means Gains for Amgen, Inc., Regeneron Pharmaceuticals Inc

Amgen, Inc. (NASDAQ:AMGN) and Regeneron Pharmaceuticals Inc (NASDAQ:REGN) are seeing a nice bump on downbeat Eli Lilly and Co (NYSE:LLY) news

Oct 12, 2015 at 11:08 AM
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Drugmakers Amgen, Inc. (NASDAQ:AMGN) and Regeneron Pharmaceuticals Inc (NASDAQ:REGN) are rallying after rival Eli Lilly and Co (NYSE:LLY) decided to pull the plug on development of its cardiovascular drug, evacetrapib, citing "insufficient efficacy." By contrast, AMGN and REGN recently received the green light from the Food and Drug Administration (FDA) to sell cholesterol-lowering treatments belonging to a different drug class. As such, option bulls are locked in on the duo.

As alluded to, AMGN has caught fire -- up 2.2% at $152.84, trimming its year-to-date loss to 4%. The gains are sparking an uptick in call trading, with the contracts crossing at 1.5 times the normal intraday rate, and twice the pace of puts. In fact, one group is buying to open the stock's October 157.50 call, rolling the dice on more upside by week's end, when the series expires.

Look at data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), this bullish bias is par for the course. Specifically, AMGN's 10-day call/put volume ratio of 2.37 indicates long calls have more than doubled puts during the past two weeks. What's more, this ratio ranks 5 percentage points from an annual high.

Reinforcing this preference for calls over puts, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.76 registers near the bottom quartile of all readings taken in the previous 12 months. In other words, short-term option players are more call-skewed than usual.

REGN has a similar set-up -- though its technicals are far more impressive than Amgen, Inc.'s. Specifically, the former has surged 4.2% today to $524.81, and over 28% year-to-date. At present, the stock is bouncing between its 40- and 50-day moving averages.

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In the options pits, REGN's intraday call volume roughly doubles typical trading levels. Longer term, the stock's 10-day ISE/CBOE/PHLX call/put volume ratio of 1.28 tops 81% of comparable readings from the last 52 weeks. Echoing this, Regeneron Pharmaceuticals Inc's SOIR of 1.11 is positioned in the low 12th percentile of its annual range.
 

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