Call-option trading in King was the busiest since September and its shares rose to a seven-month high on speculation Pfizer will buy the drugmaker, Bloomberg News reports.
"There's chatter about possible interest from Pfizer,'' Frederic Ruffy, senior options strategist at WhatsTrading.com, tells Bloomberg. "People are positioning for some kind of catalyst in the short term.''
Earlier today, more than 20,400 King calls traded, outnumbering puts by 60-to-1 and represented an almost 44-fold jump from the 20-day average. King shares gained 3.5 percent to $12, and are up 17 percent this year. This month's options expire August 15. Calls give the right to buy a stock for a certain amount, and the strike price indicates this must occur by a given date. Puts convey the right to sell.
King, which sells the Altace blood-pressure pill, shifted its focus to painkillers after a court ruling invalidated the drug's patent last fall, clearing the way for lower-priced generics, Bloomberg reminds us. The drugmaker licensed rights to new forms of often-abused prescription painkillers that resist tampering, a new market that King and its partner, Acura, claim will reach $1 billion in annual US sales. (More on that tomorrow, though, so stay tuned).
Today's most-traded King options were August $12.50 calls, which rose 250 percent to 75 cents and accounted for more than half of King options trading. Implied volatility, the key gauge of options prices, for the contracts rose 86 percent to 113.35, Bloomberg writes.
"It's really aggressive buying,'' Michael McCarty, an options strategist at Meridian Equity Partners, tells Bloomberg. "There is a bit of speculation out there about a takeover, and the activity makes it look like more than just speculation.''
James Green, a spokesman for King, didn't return a voice-mail message. Shreya Jani, a spokeswoman for Pfizer, wouldn't comment on "market rumors and speculation."