NEW YORK -- Option traders bought the pullback in Merck (MRK) on Wednesday.
OptionMonster's Heat Seeker system detected the purchase of about 10,000 February 62.50 calls for 39 cents. The big block traded about an hour into the session and was more than twice the previous open interest at the strike, showing that it is a new position. Buyers then turned to the January 62.50s about 20 minutes later, paying mostly 14 cents about 20,000 times.
Long calls lock in the price where investors can get long the pharmaceuticals giant, creating the potential for significant leverage. The relatively cheap cost of these options also limits the amount of capital at risk if a pullback occurs.
Merck rose 1.46% to $57.63 on Wednesday but is down about 7% from its all-time peak earlier in the month. It's now trying to hold support at a consolidation level from late October, which could make some chart watchers expect a rally.
Total option volume in the name was twice its daily average for the last month. Overall calls outnumbered puts by a bullish 12-to-1 ratio.
-- Written by David Russell of OptionMonster
Russell has no positions in MRK.