Options in Motion: Merry Merck

Guidant and Sprint Nextel are also active.
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Much of the option activity Thursday was being spurred by

Merck's

(MRK) - Get Report

court victory and strong monthly retail numbers from the nation's chain stores.

Merck options were extremely active after a New Jersey jury found that the company wasn't responsible for a plaintiff's heart attack. The news sent shares and call options of Merck higher.

The November 27.50 calls have traded 21,000 contracts and were up 65 cents, and the November 30 calls changed hands 28,000 times. The November 32.50 calls traded 7,100 times, and the open interest for the strike was 2,800 contracts. Merck's stock was up $1.17, or 4.1%, to $29.58.

Guidant's

(GDT)

puts were trading higher the day after

Johnson & Johnson

(JNJ) - Get Report

cast serious doubt on whether it will complete its buyout of the company at the agreed-upon price of $76 a share. More bad news arrived when New York Attorney General Eliot Spitzer said he has sued Guidant for failing to tell doctors about flaws in its heart devices.

The November 55 puts traded 25,500 times and gained 90 cents. An investor could have purchased the puts anticipating near-term weakness in the stock. The November 65 calls traded 15,000 contracts and fell 60 cents.

Meanwhile, the December 50 puts moved 14,600 times, and open interest for that strike was 292 contracts. The December 65 calls traded 10,700 contracts. Guidant shares were down $3.76, or 6.2%, to $56.64.

Harrah's Entertainment

(HET)

saw the November 65 calls trade 7,700 contracts after the casino owner released its quarterly earnings. The open interest for the strike was 10,200 contracts. The stock was up $1.92, or 3.1%, to $63.02.

The

iShares Russell 2000 Index ETF

(IWM) - Get Report

had the November 60.50 puts trade 27,000 contracts. With the underlying ETF recently at $66, the puts are out of the money by $5.50. In order for the puts to be in the money, the ETF would have to trade below $60.50 by November's expiration.

The November 65 calls were exchanged 8,800 times, and the November 57.50 calls traded 5,200 contracts. Also, the November 66 puts were swapped 14,600 times and slipped 40 cents.

Other contracts with notable activity were options on

Pfizer

(PFE) - Get Report

,

Apple Computer

(AAPL) - Get Report

and

Sprint Nextel

(S) - Get Report

.

Pfizer's November 22.50 calls were swapped 15,800 times, and Apple's November 60 calls traded 12,800 contracts. Meanwhile, about 13,500 of Apple's November 65 calls traded. Sprint Nextel's January 25 calls had 11,500 contracts trade.

Option volatility dropped for a second day in a row. The CBOE Market Volatility Index (VIX), which is based on the implied volatility of the

S&P 500

options and is used as a gauge for fear in the market, was recently down 5% to 12.80. The CBOE Nasdaq Volatility Index, a measure of the implied volatility of the Nasdaq 100, fell 2.8% to 15.38.