New Blue Chip Stock Soars After Dow Shakeup

The stock is set to topple several levels of technical resistance today

Lillian Currens
Aug 25, 2020 at 11:10 AM
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It was just announced that biotechnology company Amgen, Inc. (NASDAQ:AMGN) will be replacing Pfizer (PFE) on the Dow Jones Industrial Average (DJI). This change comes amid a major shakeup to the blue-chip index in response to Apple's (AAPL) four-for-one stock split, which is expected to significantly reduce its weight on the Dow, as well as its overall weight in the technology space. Salesforce.com (CRM) and Honeywell International (HON) will also be joining the index, starting Aug. 31, replacing Exxon Mobil (XOM) and Raytheon Technologies (RTX) respectively. 

The shares of Amgen are buzzing in response, up 4.8% at $246.92, and set to reclaim their 20-day moving average for the first time since early July. In fact, it looks like its August pullback was contained by the 100-day moving average, which helped springboard AMGN back north of its recently resistant year-to-date breakeven. 

AMGN Aug 25

The news is also kicking up dust in AMGN's options pits. Already, 12,000 calls have crossed the tape, which is nine times what's typically seen at this point. In the same time frame, 2,406 puts have been exchanged -- double the intraday average. Most popular by far is the weekly 8/28 245-strike call, followed by the 247.50-strike call in the same weekly series, with positions being opened at both. 

Option traders were already bullish coming into today, however. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), AMGN sports a 50-day call/put volume ratio of 2.05, which stands higher than 79% of all other readings from the past year. This suggests a healthier-than-usual appetite for long calls over the past 10 weeks. 

Traders wanting to invest in the newest blue-chip member's next move might want to look at options. The stock's Schaeffer's Volatility Index (SVI) of 24% is higher than just 11% of its annual readings, implying option players are pricing in relatively low volatility expectations at present. Additionally, Amgen's Schaeffer's Volatility Scorecard (SVS) ranks at an 86 out of 100. This means the equity has tended to exceed these expectations during the past year -- a good thing for option buyers. 


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