Unusual Options Activity: Merck & Co (MRK)

Shares of pharmaceutical giant Merck (MRK) recently jumped higher on news of a Covid drug that could substantially reduce hospitalizations. One trader sees the trend continuing.

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  • That’s based on the November $100 calls. With 44 days on the trade, over 9,850 contracts traded against a prior open interest of 249, for a 40-fold rise in volume. The buyer of the calls paid $0.29 to make the trade.

    Even with the recent jump in price, shares are now only up about 5 percent over the past year. Shares currently trade around $83, so the price would need to rise about 20 percent for the options to move in-the-money.

    While revenue has grown nearly 22 percent over the past year, shares are currently coming off a drop in earnings of nearly 50 percent, which could rebound on a strong product pipeline.

    Action to take: Shares already trade at 11 times forward earnings, but the potential for a new Covid-related treatment could boost revenue for years to come. Shares can potentially move higher, and investors can also earn a 3.2 percent yield while waiting.

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  • Traders may like the November calls. While they don’t have a long time until expiration, a continued move higher in shares could lead to high-double-digit or even low-triple-digit profits in the coming weeks, given the low price of shares.

     

    Disclosure: The author of this article has no position in the company mentioned here, and does not intend to trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.