Quest Diagnostics Inc (DGX) Bulls Rush In Amid Takeover Chatter

Quest Diagnostics Inc (DGX) was halted in early trading amid M&A speculation

by Josh Selway

Published on May 22, 2015 at 2:19 PM

Call buying has exploded on Quest Diagnostics Inc (NYSE:DGX), with M&A rumors -- a theme for today -- lifting the stock all the way to a record peak of $89. In fact, trading on the stock was halted earlier amid the takeover chatter. The shares have since pared these gains to 6.8% to trade at $78.88, with call volume running at 88 times what's normally seen at this point in the day. The most popular contract is the June 80 call, as it appears traders are buying it to open, hoping another surge above $80 by June options expiration.

This bullish sentiment among option traders isn't a new phenomenon. Over the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), DGX has amassed a call/put volume ratio of 2.66, which is only 2 percentage points from an annual high. This means calls have been bought to open over puts at a near-annual-high clip.

Outside the option pits, though, things are more bearish. Almost 13 million DGX shares are sold short, and at its average daily volumes, would take close to eight sessions to repurchase. In that case, a portion of the recent call buying could be a result of bears hedging their bets. Plus, of the 19 covering brokerage firms, 17 rate the security a "hold" or worse.

It's not like Quest Diagnostics Inc (NYSE:DGX) has been a laggard on the charts. Even before today, the shares had added roughly 29% year-over-year.


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