Trader bets on jump in shares in the next month.
February 21st call options with an $87 strike on AbbVie (ABBV) saw a 30-fold rise in volume, going from 104 open contracts to over 3,100.
The trade, expiring in 24 days, is a bet on shares rising about 3 percent from their price near $84.50.
Adding in the $1.65 the option buyer paid on average, the trade will profit the buyer if shares rally closer to 5 percent.
AbbVie has recently shed some of the drugs in its portfolio ahead of its $63 billion merger with Allergan, creating a pharmaceutical powerhouse.
Action to take: We like shares of AbbVie up to $85. Although the Allergan acquisition will likely weigh on performance for a few quarters, shares yield 5.6 percent at today’s prices and are well off the company’s recent high of $92 per share.
More importantly, the pharmaceutical sector is one that’s still out of favor, and merger activities like these ensure that bigger players come out with bigger profits in the future from expanded pipelines of new drugs as well as fewer competitors.
Speculators should look at the August 2020 $90 calls to bet on a further upswing in shares. These options trade for around $3.50, but could hit $5 or better in the next few months on a swing higher, resulting in a 42 percent profit.