Most Active Options Update: Gilead Sciences (GILD)

Gilead Sciences, Inc. traders are betting on short-term upside

Nov 10, 2014 at 1:48 PM
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The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest today is biopharmaceutical concern Gilead Sciences, Inc. (NASDAQ:GILD), as Merck & Co., Inc.'s (NYSE:MRK) loss appears to be GILD's gain.

Most Active Options Table

Gilead Sciences, Inc. is up 1% at $107.47, thanks to ebbing concerns about competition from MRK's hepatitis C treatment. As such, analysts are waxing optimistic on GILD -- maker of blockbuster drug Sovaldi, which proved extremely effective when paired with Achillion Pharmaceuticals Inc's (NASDAQ:ACHN) ACH-3102 -- as they expect the company to maintain the upper hand in the hepatitis C market. In fact, FBR opined that ACHN could emerge as a possible acquisition target for GILD, while Nomura hiked its price target on GILD to $152 from $148 and underscored a "buy" endorsement.

In the options pits, GILD calls are outnumbering puts by a margin of more than 2-to-1, with roughly 28,000 contracts exchanged. Digging deeper, it appears short-term bulls are buying to open the weekly 11/14 110-strike call, where most of the contracts have traded on the ask side, and volume has surpassed open interest.

By purchasing the weekly calls at a volume-weighted average price (VWAP) of $1.12, the buyers expect GILD to climb atop $111.12 (strike plus VWAP) by Friday's close, when the series expires. Should the equity remain south of the strike through the end of the week, the most the buyers will lose is the initial premium paid for the calls.

Longer-term bulls are seemingly buying to open the December 115 call, which is the second most active option so far today. By purchasing the calls at a VWAP of $2.67, the traders expect GILD to muscle north of $117.67 -- in record-high territory -- by the close on Friday, Dec. 19, when back-month options expire. Again, risk is capped at the initial premium paid, should GILD remain beneath the strike through the option's lifetime.

Now is an opportune time to buy Gilead Sciences, Inc.'s (NASDAQ:GILD) short-term options. The stock's Schaeffer's Volatility Index (SVI) of 34% stands higher than just 35% of all other readings from the past year, suggesting the stock's near-term options are attractively priced, historically speaking.


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