Ireland-based Elan Corporation (NYSE: ELN) was the target of bullish options bettors on Thursday, thanks to buyout rumors surrounding the biotech behemoth. The security saw 37,000 calls change hands yesterday, nearly 10 times its average daily volume of roughly 3,700 contracts. Most active was the stock's April 7 call, which saw about 13,775 contracts cross the tape. The optimistic option's implied volatility snowballed overnight from 94.7% to 101.6%, indicating that demand for this contract has escalated. Compared to ELN's 1-month historical volatility of 77%, the April 7 call's lofty implied volatility suggests that this option is more expensive than usual.
After yesterday's outpouring of optimism, the 7 strike is now home to peak call open interest in the front-month series of options, with 11,117 contracts in residence. Not far behind are the out-of-the-money April 8, 9, and 10 strikes, with each home to more than 7,000 call contracts. This heavy accumulation of near-term bullish bets is further echoed by ELN's Schaeffer's put/call open interest ratio (SOIR) of 0.29, implying that calls more than triple their bearish rivals among options slated to expire within 3 months. Furthermore, the drug maker's SOIR ranks in the 17th annual percentile, indicating that short-term options speculators have been more bullishly biased toward ELN only 17% of the time during the past year.
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Andrea Kramer, 513-589-3800
akramer@sir-inc.com
