M&A Drama Inspires Rare Round of Sanofi SA (SNY) Call Trading

Sanofi SA (SNY) call options are trading at nearly triple the expected intraday rate

Alex Eppstein
Dec 21, 2016 at 2:18 PM
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Sanofi SA's (ADR) (NYSE:SNY) hopes of buying Actelion have been dealt a serious blow, after Johnson & Johnson (NYSE:JNJ) -- which previously ended merger talks with Actelion -- resumed M&A discussions with the Swiss biotech. SNY options traders have responded to the corporate drama, with volume ramping up on the call side of the aisle.

Specifically, Sanofi call options are being exchanged at nearly three times the expected intraday clip. The most active call is the January 2017 38 strike -- though volume is low, from an absolute perspective -- where speculators are likely purchasing new positions. The goal of call buyers is for SNY stock to extend its lead above $38 through front-month expiration, at the close on Friday, Jan. 20.

This represents a dramatic turn of events for the drugmaker. Previously, put buyers were in the driver's seat. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SNY has racked up a 10-day put/call volume ratio of 11.59 -- in the put-skewed 86th percentile of its annual range.

As a result, short-term open interest levels are tilted toward puts, especially among near-the-money strikes. Specifically, the stock's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) is 2.55, with puts more than doubling calls. Overall, the top open interest position is the January 2017 39-strike put, with more than 4,200 contracts in residence.

Fortunately for call buyers -- and unfortunately for bearish speculators -- SNY shares are actually responding positively to the JNJ-Actelion news. At last check, the stock is 1.6% higher at $39.47. However, it also appears SNY may be hitting a snag at its 40-day moving average, which previously acted as support, but could now be switching roles as resistance.

Whether or not today's options traders win on their transactions, they can rest easy knowing they scooped up their front-month bets on the cheap, relatively speaking. Sanofi SA's (ADR) (NYSE:SNY) Schaeffer's Volatility Index (SVI) of 20% rests below 91% of all comparable readings taken in the past year. In simpler terms, modest volatility expectations are currently being priced in to short-term SNY options.

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