M&A Chatter Heats Up Biogen Inc's (BIIB) Options Pits

Biogen Inc (BIIB) is pulling back after M&A chatter sent the stock soaring on Tuesday

Aug 3, 2016 at 12:05 PM
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Biotech stock Biogen Inc (NASDAQ:BIIB) surged nearly 10% in late trading Tuesday on reports that both Merck & Co., Inc. (NYSE:MRK) and Allergan plc (NYSE:AGN) may be interested in a takeover of the company. Today, however, the shares have pulled back -- last seen off 4.2% at $316.35 -- after sources told CNBC that Allergan has no interest in such a deal. Nevertheless, the continued M&A chatter has BIIB's options pits buzzing, with contracts changing hands at twice their usual intraday rate.

Options volume is running in the 98th percentile of its annual range so far today, with calls outpacing puts, and accounting for seven of the 10 most active strikes. The August 350 call is popular for a second day running, though it's unclear whether positions are being opened or closed today. A flood of call buyers targeted the strike on Tuesday, when sharp gains boosted the call's delta to 0.28 from just 0.02. Today, however, the option's delta has fallen back to 0.11.

Elsewhere, the weekly 8/5 series has picked up significant traction today, with the 310-strike put now at the top of the leaderboard. It looks like bearish traders are purchasing new positions here, betting on BIIB to slide back below the strike price by the close this Friday night, when the weekly series expires.

Overall, today's action looks like more of the same for BIIB. While long calls have outpaced puts on an absolute basis of late, options traders have been far more put-heavy than usual. In fact, the stock's 50-day put/call volume ratio of 0.88 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is seated at an annual high.

Bearish sentiment may be creeping up outside of the options pits, as well. Over the two most recent reporting periods, short interest on the stock climbed by more than 17% -- though these pessimistic bets still account for just 1.2% of BIIB's total float.

Meanwhile, analysts remain upbeat, with 11 out of 16 rating the shares a "buy" or better, and not a "sell" in sight. In fact, RBC commented following yesterday's buyout rumors that a takeover could value BIIB at anywhere between $375 and $475 per share -- just short of the equity's record high around $480, touched in March 2015.

Technically, BIIB has been making a strong comeback recently, adding nearly 42% since bottoming out at a two-year low of $223.02 in late June. In fact, Tuesday's rally saw the shares hit an intraday high of $333.65 -- less than $5 shy of Biogen Inc's (NASDAQ:BIIB) annual peak from early August. Though down sharply today, the shares may have been due for a breather, as BIIB's 14-day Relative Strength Index (RSI) of 88 at Tuesday's close put it deep in overbought territory.

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