Walgreens Boots Alliance Inc (WBA) Options Heat Up on M&A Chatter

Walgreens Boots Alliance Inc (WBA) options pits are buzzing amid reports that its Rite Aid Corporation (NYSE:RAD) acquisition will get FTC clearance

by Kirra Fedyszyn

Published on Jun 10, 2016 at 3:18 PM
Updated on Jun 24, 2020 at 10:16 AM

Walgreens Boots Alliance Inc (NASDAQ:WBA) is 3.9% higher at $82.11, after a report in the New York Post said that the company’s pending $17 billion acquisition of Rite Aid Corporation (NYSE:RAD) is likely to be approved by the Federal Trade Commission (FTC). While the stock treads higher -- bucking the broad-market sell-off -- WBA's options pits are buzzing once again.

WBA options are changing hands at five times their average intraday rate, with calls firmly in the lead. The most active option of the day, however, is the June 77.50 put, where it appears buy-to-open action may be happening. If that is the case, buyers of the put are either betting on WBA to make a quick, sharp drop, sinking below the $77.50 level before next Friday's close, when the front-month option expires, or they're WBA shareholders buying this out-of-the-money put to hedge against downside risk.

On the other side of the coin, it looks like some traders may be purchasing new positions at the WBA July 90 call, expecting the shares to make significant gains over the next five weeks. And these calls are less likely to be of the protective variety, given that short interest on WBA fell by nearly 20% during the two most recent reporting periods. In fact, these bearish bets currently represent just 1% of the stock's available float.

Overall, sentiment toward WBA has been distinctively bullish of late. Calls nearly double puts among WBA options expiring in three months or less, per the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.51. Moreover, this reading sits just 8 percentage points from a 12-month low, indicating that near-term traders have rarely been more call-skewed.

The brokerage crowd also holds a relatively upbeat outlook on WBA, with 12 out of 17 analysts rating the shares a "buy" or better, and not a single "sell" to be found. Plus, the average 12-month price target of $94.27 sits at a healthy 15% premium to the stock's current value.

Walgreens Boots Alliance Inc (NASDAQ:WBA) is set for its highest close since early April. While the security is still sitting nearly 4% shy of breakeven for 2016, it's making a strong attempt to close above its 200-day moving average for the first time in more than two months.

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