Call Traders Swarm Surging Eli Lilly and Co (LLY)

Eli Lilly and Co reached a deal with Zosano Pharma Corp. today

Digital Content Group
Dec 2, 2014 at 2:19 PM
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Eli Lilly and Co (NYSE:LLY) is surging on an agreement to develop Zosano Pharma Corp.'s osteoporosis treatment, ZP-PTH. At last check, the shares were 3% higher at $70.57, after earlier reaching a 10-year peak of $70.77. Not surprisingly, calls are flying off the shelves at quadruple the normal intraday clip, and short-term strikes are being targeted, as LLY's 30-day at-the-money implied volatility (IV) has risen 4.2% to 15%.

Digging deeper, the pharmaceutical giant's most active option is the weekly 12/5 68.50-strike call, where north of 2,400 contracts have been exchanged. More than three-quarters have crossed at the ask price, and volume outstrips open interest, collectively hinting at buy-to-open activity.

Traders paid a volume-weighted average price (VWAP) of $1.31 for the in-the-money calls. As such, breakeven at this Friday's close -- when the weekly series expires -- is $69.81 (strike plus VWAP). As alluded to, Eli Lilly and Co (NYSE:LLY) is presently perched above this level, suggesting today's buyers are already staring at potential paper profits.

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