Merck Options Traders React to Stock Pullback

HHC shares are selling off sharply after the company's new plan

Oct 22, 2019 at 2:40 PM
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Stocks are hovering near breakeven today as traders digest a huge round of earnings releases. Two names to watch today are drugmaker Merck & Co, Inc. (NYSE:MRK) and real estate concern Howard Hughes Corp (NYSE:HHC). Here's what's moving the shares of MRK and HHC today.

Options Trades Take Sides on Merck

MRK has pulled back 3.6% today to trade at $81.47, following upbeat trial data from rival Bristol-Myers Squibb's (BMY) Opdivo. However, the shares seemingly found notable support from the $80 region and the 200-day moving average. The stock remains up 6.8% year-to-date.

But while most analysts in coverage recommend buying the stock, options traders are positioned defensively. Merck's Schaeffer's put/call open interest ratio (SOIR) comes in at 1.25, and ranks in the 98th annual percentile. So not only does this show put open interest outweighs call open interest among contracts expiring within three months, but such a put-skew is rare.

Despite this fact, peak open interest rests at the November 90 call, and the 87.50 call from the same series is right behind. And in today's trading, the November 82.50 and 85 calls are seeing the most activity, driving intraday volume to more than twice the average. Either way, volatility expectations are probably about to pick up, with earnings due out next Tuesday, Oct. 29.

Howard Hughes Stock Dives on New Plan

HHC shares are trading down 16.1% at $107.73, after the company -- which has activist investor Bill Ackman as chairman -- disappointed investors by saying it will only be selling $2 billion in assets instead of selling the whole company. Plus, Paul Layne was named the new CEO. The stock is back trading where it was before the giant June bull gap, falling before the 200-day moving average for the first time since that time. This has sparked a flurry of activity in the options pits, where calls and puts are both trading at multiples of their daily average.

Most popular are the January 2020 and April 2020 90-strike puts, and new positions are opening at each. More than 2,200 contracts have crossed at these contracts alone today, while Howard Hughes has only seen 721 puts bought to open at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) over the past 50 days.

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