Options Action: Merrill, Amgen, Medicals

Merrill Lynch, Amgen, and some medical instrument outfits are getting a lot of options action this week, according to one observer.

There was a jump in options traffic Friday for Merrill Lynch , Rebecca Darst of Interactive Brokers explained on CNBC Monday.

"There's a lot of pearl-clutching melodrama in the financials right now, but by and large, implied volatilities on most leading banks and brokerages, while it's still high, is still well off the highs we saw back on July 15th, when the anxiety about Fannie and Freddie was at its highest pitch," she said. "But in the case of Merrill Lynch, the implied volatility reading that we're seeing right now is about 106 percent, only about 8 percent off that July 15th high, so there's still a lot of relatively more anxiety attached to Merrill Lynch for some reason, compared to other brokerages." (For her full comments see video).

Rumors in the market may be contributing to the situation, Darst pointed out.

"Earlier in the session on Friday, ... Singapore's Temasek came out and made a statement that there had been some rumors that they might be pulling their money out of Merrill Lynch. They called that 'mischievous speculation' or 'speculative mischief' -- as if there's any other kind -- and so, rather than implied volatility coming down, it went up, so keep an eye, in particular, on the August 25 puts, which were the most actively traded options on Merrill Lynch on Friday. The price tag on those on Friday, heading into the close, was $2.13, reflecting about a one-in-three chance of Merrill breaking below 25 by mid-August."

Options also were active on Amgen , Darst said. Most traders were positioning for the company's earnings report Monday. But the company Friday reported late-stage clinical trial results that showed denosumab reduced the incidence of fractured vertebrae in post-menopausal women.

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"Something else to keep an eye on with Amgen was that we did notice some defensive positioning in the October contracts, so a lot of interest not just in these front-month options that are connected with the earnings, but also open interest in the 50 strike puts in October in Amgen doubled over the period of last week, which could indicate some traders looking to take protective positions, and looking to defend against stocks handing back those gains by the fall."

Medical instrument companies were also active, she said.

"Throughout the day Friday, we saw high implied volatility and high volume in medical instrument makers. This sector as a whole took a hit on Friday, because there were a couple of names out with bad earnings and even poorer guidance, which has been really toxic for stocks lately. Cepheid

and Affymetrix disappointed the Street with their earnings, and what we saw was the entire sector take a hit. Abaxis , also a medical-instrument maker, also had some disappointing earnings. What we saw here was, after earnings, implied volatility will recede very quickly, but in the case of Abaxis, it's remained high. It's crazy. So, implied volatility is up about 63 percent against a historic reading on the stock of just under 47 percent. That's an indication that the option market sees potential for even more turbulent price action in this stock over the next month than it's shown historically, and the way we saw option traders playing this was through trading November 20 strike calls."

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