Bulls Target Medicines and Metals: Options Recap


Yesterday’s options market saw very similar trades in two very different companies.

Mylan (MYL) is a well known maker of drugs and health-care products, while Cliffs Resources (CLF) produces iron-ore pellets for steelmakers. Both have been rising, and both had bullish call rolls as investors positioned for further upside:

  • In MYL, they sold about 60,000 June 40 calls for $1.60 and bought 60,000 June 42.50 calls for $0.65. So, they received a $0.95 net credit.
  • In CLF, they unloaded about 27,000 May 6 calls for about $2.89 and bought an equal number of June 7 calls for $1.97. They collected $0.92.
  • In another CLF transaction, 10,000 July 8 calls were sold for $1.21 and 10,000 October 9 calls were bought for $1.08. That was good for a $0.13 credit.

Calls tend to profit when a stock moves higher because they fix the price where investors can buy shares. That seems to have happened in both MYL and CLF. The traders responded by selling the lower-strike calls, which got more valuable, and rolling to cheaper contracts at higher strikes. They managed to get back some of their capital in the process, while remaining exposed to further upside if the rallies continue. (See our Knowledge Center.)

MYL rose 2.30 percent to $40.08, and is up 13 percent since announcing quarterly results on May 9. While earnings and revenue missed estimates, analysts focused on the potential for positive catalysts from a biosimilar Neulasta program and generic Advair in June.

CLF advanced 2.40 percent to $8.95. It beat consensus on April 20 and raised guidance thanks to higher prices. The stock briefly paused at its 50- and 200-day moving averages before ripping higher at the start of last week. It was also highlighted on Don’s Morning Market Briefing on May 7.

Overall options volume was 8 times greater than the monthly average in MYL, and triple normal amounts in CLF. Calls outnumbered puts by more than 90 percent of total activity in both.

Bottom line: MYL and CLF have been running and options traders are looking for the gains to continue.

Advertisement #1 Trading Platform Technology - 8  years running!

Previous articleDon’s Notebook May 18, 2018
Next articleWhy Last Week Was More Interesting than It Looked
David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.