Move over Net stocks, another tech is in town! Biotech was the dominant factor in today's options world after big pharma
dipped its toes into the biotech pool and acquired
, maker of an AIDS inhibitor, for $2.1 billion.
The deal, announced last evening, spiked interest not only in Warner-Lambert's options, but also those of a few other biotech and pharmaceutical companies. (For more about the deal, see
story published earlier today.)
Rod Jamieson, options strategist for
, says his group is seeing big action in drug stocks such as
, buoyed by positive reports of new drugs and working agreements. "We're seeing all call-buying yesterday and today, especially in Monsanto," he adds.
Warner-Lambert saw heavy action as one investor apparently constructed a put/call spread in its April options. The investor traded about 7,500 contracts of April 65 puts, and about 7,200 contracts of April 75 calls. Judging by the buy and sell indicators, it appeared the investor was selling both puts and calls, taking in about $3.5 million. Both trades came against lesser open interest. Warner-Lambert's stock was up 3 to 72 1/8 this afternoon.
Also, the rarely active
American Exchange Biotechnology
index, BTK, saw 600 contracts in its March 200 calls go out against only one contract in open interest. The index was at 191.96, up 3.46 today.
"Whenever there is a big merger in a sector, the rest of the stocks in that sector come under intense interest," says Kevin Murphy, head of retail options at
Salomon Smith Barney
. "There has been so much focus on tech, it appears that it may pull back and now biotech is starting to get an emphasis."
The action in the biotech sector comes at the expense of tech stocks, Jamieson says. "We had some put selling in the sector
was a favorite for put sellers today, but mostly activity has dried up on the retail side," he notes. The recent selloff in Net and tech stocks a week or so ago has scared away some retail option players, even keeping them out of the more recent rally, Jamieson explains. "And on days like today when the market is down, our business dries up."
However, not all options players today were interested in the life-prolonging possibilities of biotech companies.
, one of the nation's largest funeral homes, also was seeing heavy options action a day after an earnings warning cut its stock in half.
Action was anything but dead in the company's March and May strike prices as one investor dug in for a put/call spread between the March 15 puts and the March 22 1/2 calls. The action appeared bullish as the investor was selling the puts and buying the calls. Also active were the May 20 puts, trading 1,000 contracts against only 36 in open interest.
The company's stock was lolling at 19 1/8, unchanged, after falling more than 15, or 45%, yesterday when it said lower mortality rates may bury fourth-quarter earnings. (For more on Service Corp.'s announcement, see
As originally published this story contained an error. Please see Corrections and Clarifications.