Relypsa Inc (RLYP) Option Volume Pops Amid Big-Cap Buyout Buzz

Relypsa Inc (NASDAQ:RLYP) options are on fire amid rumors of Merck & Co., Inc. (NYSE:MRK) interest

by Andrea Kramer

Published on Dec 4, 2015 at 12:58 PM
Updated on Dec 4, 2015 at 1:27 PM

Relypsa Inc (NASDAQ:RLYP) has surged 17.2% to $26.20, after StreetInsider sources said Merck & Co., Inc. (NYSE:MRK) is interested in buying the California-based drugmaker. What's more, RLYP options are flying off the shelves, with some traders betting on a surge north of $30 in the next couple of weeks.

Total options volume is running at five times the norm, though RLYP calls are outpacing puts by a margin of 3-to-1. In fact, with more than 6,000 calls across the tape, today's volume is on pace for a 52-week high. Reflecting the growing volatility expectations, RLYP's 30-day at-the-money implied volatility has skyrocketed 36.3% to 135.7% -- just 38 percentage points from an annual high.

Most popular is the December 30 call, which is seemingly attracting new buyers. By purchasing the call at a volume-weighted average price (VWAP) of $1.51, the traders' profit will grow the higher RLYP soars north of $31.51 (strike plus VWAP) by the close on Friday, Dec. 18, when front-month options expire. Delta on the call has nearly doubled overnight, to 0.36 from 0.17, suggesting the odds of an in-the-money finish now stand at 36%.

RLYP hasn't traded atop $30 since before its October implosion, which sent the shares sinking to a record low of $10.26. In fact, the stock's plunge inspired quite a few bears, with short interest surging nearly 60% during the past two reporting periods. These pessimistic positions now account for 20.6% of RLYP's total available float. Against this backdrop, perhaps some of today's out-of-the-money call buyers are short sellers seeking a short-term hedge.

Whatever the motive, today's appetite for long Relypsa Inc's (NASDAQ:RLYP) calls is nothing new. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the biotech has racked up a 10-day call/put volume ratio of 10.58. In other words, traders have bought to open nearly 11 calls for every put during the past two weeks.

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