The Wall Street Journal-20080126-Some Traders Buy Bullish Options In Merck and Schering-Plough
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Some Traders Buy Bullish Options In Merck and Schering-Plough
Options in Merck & Co. and Schering-Plough Corp. traded heavily Friday as the companies faced regulatory scrutiny.
The companies have taken criticism that they delayed reporting results of a drug trial that was unfavorable for Vytorin, a cholesterol drug co-marketed by the pharmaceutical giants.
The Food and Drug Administration said Friday it would review whether to take action over the drug trial. Merck and Schering-Plough issued a statement defending their handling of the study.
The companies' stock prices have dropped sharply since the Vytorin results were released, and continued to fall Friday.
Amid the developments, traders jumped into call contracts for both companies. The number of call options traded Friday was about six times average daily volume this month.
"As soon as the FDA said that they were going to be making comments today, the options market reacted in kind," said Adam Futterman, managing director of options sales and trading with WJB Capital Group.
Trading in Merck options focused on contracts that give holders the right to buy Merck shares at $47.50 by late next month. More than 22,000 of these February 47.50 calls changed hands, or nearly 14 times the open interest.
These call contracts were mostly being bought, indicating mild confidence in a pickup in Merck shares, but not a large expected move, said Rebecca Engmann Darst, equity options analyst at Interactive Brokers Group.
Merck shares declined 3.6% to end the session at $47.79. Buyers focused on Schering-Plough's February calls at the $20 strike price, which was roughly the company's share price when trading opened Friday. Nearly 39,000 of these February 20 calls traded, about five times the open interest. The price of the contract was halved to 55 cents. Shares of Schering-Plough closed at $19.02, off 5.7%.
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Jennifer Corbett Dooren contributed to this article.
