Takeover Talk Inspires AstraZeneca plc (AZN) Option Bulls

AstraZeneca plc (ADR) (NYSE:AZN) options traders are responding to rumors that Novartis AG (ADR) (NYSE:NVS) could buy the company

Nov 11, 2016 at 1:44 PM
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AstraZeneca plc (ADR) (NYSE:AZN) stock volume is surging today, running in the 98th percentile of its annual range, as rumors swirl that fellow drugmaker Novartis AG (ADR) (NYSE:NVS) is considering buying the company. Elsewhere, AstraZeneca also announced Symbicort inhaler improved lung function in pediatric patients in a study. Amid all of this buzz, AZN stock has added 1.4% to trade at $28.08, and options traders are hoping for more upside. 

So far today, AZN call options are trading at 11 times what's normally seen, accounting for all 10 of the stock's most popular options. A number of traders are targeting the weekly 11/11 series, which expires today, with the 27, 27.50, and 28 strikes all seeing heavy attention. Data suggests traders are buying to open contracts at each of these strikes, meaning they're betting on extended upside for AZN shares within the next few hours.  Other bulls are potentially buying to open the November 28 and 28.50 calls, giving the stock an extra week to rally, since front-month strikes expire at next Friday's close.

What's for sure is that this preference for call options is far from the norm for AZN traders. In fact, the stock's 10-day put/call volume ratio of 6.96 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is a 12-month high. Reinforcing this bias toward puts is AZN's front-month gamma-weighed Schaeffer's put/call open interest ratio (SOIR) of 3.23, which shows put open interest triples call open interest among near-the-money options in the November series. 

Pessimism is also present elsewhere. For instance, short interest on AZN has almost tripled since the start of the year, and now represents nearly a week's worth of buying power, at the stock's average daily volumes. Plus, overnight, Leerink and Jefferies each lowered their price targets on the shares.

It's hard to blame anyone for betting bearishly on AstraZeneca plc (ADR) (NYSE:AZN) stock.The shares have given back all their gains and then some from their late-July bull gap, and now AZN finds itself back inside a downward channel that began in mid-2014. In 2016 alone, the stock has shed over 17%. 

Weekly chart of AZN Nov 11

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