Options Check-Up: Bristol-Myers Squibb, Merck & Co., and Novartis AG

Analyzing recent option activity on Bristol-Myers Squibb Co (BMY), Merck & Co., Inc. (MRK), and Novartis AG (ADR) (NVS)

Jan 23, 2015 at 8:11 AM
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Among the stocks attracting attention from options traders lately are pharmaceutical firms Bristol-Myers Squibb Co (NYSE:BMY), Merck & Co., Inc. (NYSE:MRK), and Novartis AG (ADR) (NYSE:NVS). Below, we'll break down how option buyers are positioning themselves, and how much speculators are willing to pay for their bets on BMY, MRK, and NVS.

  • Shares of BMY have been on the rise, adding 15% year-over-year to perch at $62.09. The security has also notched a 5.2% gain year-to-date. Accordingly, sentiment in the options pits is bullish ahead of the company's scheduled earnings report Tuesday, Jan. 27 -- Bristol-Myers Squibb Co's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 5.32 sits just 8 percentage points away from an annual optimistic peak. However, 47% of covering analysts rate the stock a "hold" or worse, and a round of post-earnings upgrades could provide tailwinds for BMY. Short-term options for the security are fairly priced, historically speaking, per its Schaeffer's Volatility Index (SVI) of 23%, which is in the 42nd percentile of all similar readings taken over the past year.

  • Sector peer MRK is also trending higher, gaining 21.3% year-over-year to hit $62.59. In fact, the equity notched a fresh 12-year high of $63.62 on Jan. 13. Meanwhile, sentiment in the options pits is heavily skewed toward puts. Merck & Co., Inc.'s 50-day ISE/CBOE/PHLX put/call volume ratio of 0.73 is in the 99th annual percentile. Much like BMY, near-term options for MRK are pricing in middle-of-the-road volatility expectations, with its SVI of 21% ranking in the even 50th percentile of its annual range.

  • NVS is outperforming as well, adding 18.4% year-over-year to reach $96.84. Activity in the options pits is tilted toward puts ahead of its Jan. 27 earnings report; Novartis AG (ADR)'s 10-day ISE/CBOE/PHLX put/call volume ratio of 0.68 ranks in the 65th percentile of all similar readings taken annually. Short-term options for NVS are slightly more expensive than usual, per its SVI of 19%, which is in the 65th percentile of its annual range.

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