Options Flow Summary: ELN & AA
Elan Corp ADR (ELN)
Options on biotech name ELN are active today, with 69,000 contracts traded by 2pm. This is well beyond the recent daily average levels of 54,000. The stock has had an impressive run since earnings in April when it was trading at $15. The current level for the stock is $22.
Todayís activity is dominated by short-dated sellers of July and August 22.5 calls along with buyers in October upside calls. This suggests traders are looking for a quiet summer followed by renewed upside activity later this year.
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Alcoa Inc (AA)
Alcoa is trading triple itís average daily options volume today. The stock is up nearly a dollar to $42.51 on chatter of a European takeover. At 2pm we have 61,000 calls traded and 59,000 puts for a put/call of .97. This is a significant move from the recent moving average P/C of .43. The stock has pulled back from a high at $42.90 near 1:30PM. The order flow has been consistently dominated by call buyers and put sellers positioning for a deal.
The leading strategy appears to be a legged sale of the July 42.5-37.5 put spread for a credit of $1.50. With positive ëdecayí over the coming month and downside limited to $3.50, traders seem to be comfortable putting on the position to profit from a takeover or continued upward to flat momentum.
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About Henry Schwartz
Henry Schwartz has traded derivatives on US and European exchanges for nearly 20 years. His experience includes market-making and institutional trading at the Hull Group, Salomon Brothers, Bear Stearns and most recently Banc of America Securities, where he led the electronic market-making project coincident with the launch of the ISE. His current work involves real-time stream analysis of options market activity for a number of leading institutional sell-side firms.
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