Calls Hot After Philip Morris-Altria Merger Fizzles

Philip Morris and Altria group had been planning a merger

Managing Editor
Sep 25, 2019 at 10:08 AM
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The shares of Philip Morris International Inc. (NYSE:PM) are in focus this morning, after the tobacco company abandoned merger talks with Altria Group (MO). The two companies were set to combine after Altria was spun off in 2008, with talks heating up late last month. Ultimately though, both sides decided to focus on the launch of IQOS, a tobacco heating product.

In response, Philip Morris stock is up 6.9% to trade at $76.50, on track for its best day since July 18. PM gapped lower in late August when news of the planned merger broke, but quickly found support at the $70 level. Thanks to today's burst, the shares are on track to topple their 30-day moving average for the first time on a closing basis since that Aug. 23 bear gap. 

There's been a big uptick in options activity this morning. In just the first half hour of trading, already 21,000 options have changed hands, eight times the average intraday volume and pacing for the 100th percentile of its annual range. Leading the charge is the weekly 9/27 80-strike call, but there are also new positions being opened at the weekly 9/27 78-strike call.

The emphasis on calls is nothing new. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 2.05 registers in the 84th annual percentile, meaning that not only have calls doubled puts in the last two weeks, but calls have been bought to open over puts at a quicker-than-usual pace.

Plus, Philip Morris stock sports a Schaeffer's Volatility Scorecard (SVS) of 89 (out of a possible 100), meaning the security has consistently made bigger moves on the charts than its options premiums have priced in over the past year.


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