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Wednesday, December 6, 2023

Bulls Bulk Up on Affymetrix Call Options

Today’s tickers: AFFX, AXP, WMG & MED

AFFX – Affymetrix, Inc. – Call options on the biotechnology company are in demand today, with shares in the maker of genetic analysis products rising as much as 6.3% to an intraday high of $6.25. The jump in options activity on the stock helped lift the overall reading of options implied volatility on Affymetrix 17.9% to 73.54% in early-afternoon trade. June in- and out-of-the-money calls are most active on AFFX today. It looks like the June $5.0 strike calls were also popular with bullish players during trading on Thursday. Open interest patterns in the calls suggest investors purchased 2,100 contracts at the June $5.0 strike yesterday for a premium of $0.95 each. The subsequent rally in the price of the underlying stock overnight combined with the sharp increase in implied volatility lifted the current asking price on the options to $1.50 each as of 1:25pm in New York. Options players hoping to see the price in Affymetrix shares continue to trend higher ahead of expiration day next month purchased the majority of the calls exchanged at the June $7.5 strike today. More than 2,000 calls changed hands at that strike on previously existing open interest of 561 contracts. The June $7.5 strike is the most heavily trafficked this afternoon, with buyers of the calls shelling out an average premium of $0.25 per contract for the options. Investors long the calls profit in the event that AFFX shares surge 24.0% over today’s high of $6.25 to surpass the average breakeven price of $7.75 by expiration day in June.

AXP – American Express Co. – Shares in the credit card company rallied as much as 1.9% this morning to touch an intraday- and nearly three-year high of $50.47. Trading in American Express options suggests investors differ in terms of their expectations for the performance of the stock in the near term. Volume in AXP options is heaviest at the May $52.5 strike, where more than 5,850 calls changed hands against previously existing open interest of 1,242 contracts. It looks like the majority of these calls sold for an average premium of $0.09 a-pop. Call sellers keep the full amount of premium as long as the price of the underlying trades below $52.50 through expiration day. Investors short the calls could get crushed if shares in AXP continue to trend higher in the next couple of weeks, but it seems the $0.09 in premium per contract received on the sale is sufficient compensation for sellers bearing the risk of a sharp rally in the stock. Some of the calls, roughly 1,200 of them, were purchased at an average premium of $0.09 apiece. The zero-sum game of at-expiration options implies that not all strategists trading these calls can come out on top in the end. May contract put options are quite active today, as well. The majority of the out-of-the-money puts were sold by investors. Put sellers may be ditching downside protection, or selling the contracts outright to pocket available premium. Buyers of near-term put options surfaced at the May $50 strike, buying around 1,100 of the contracts for an average premium of $0.63 each. Traders long the puts make money if the price of the underlying stock dips 2.2% in the next couple of weeks to trade below the average breakeven price of $49.37 by expiration day. Further out at the June $55 strike, investors exchanged more than 1,600 calls on paltry previously existing open interest of just 30 contracts. It looks like nearly all of these contracts were purchased for an average premium of $0.16 each. Traders long the calls profit if shares in AXP jump 9.3% over today’s high of $50.47 to surpass the average breakeven price of $55.16 by expiration next month.

WMG – Warner Music Group Corp. – Put sellers excised premium left on the table at Warner Music Group this morning on reports the world’s third-largest music company has been purchased by billionaire Len Blavatnik’s Access Industries in an all-cash deal valued at $8.25 a share. Shares in WMG rallied as much as 3.2% during the session to touch an intraday and new 52-week high of $8.15. Confirmation of the deal, which is expected to close in the third quarter, sent options implied volatility on the stock crashing 57.7% lower to 19.26% as of 12:50pm. More than 7,100 puts changed hands at the November $7.5 strike today on open interest of 1,358 contracts. It looks like most of the puts sold for a premium of $0.10 a-pop this morning. Open interest patterns at that strike suggest traders acting ahead of today’s news sold 1,000 of the puts on Thursday for $0.70 per contract. Investors short the puts at $0.70 a-pop benefitted handsomely from the overnight collapse in implied volatility, and are likely to keep most if not all of the premium received on the trade.

MED – Medifast, Inc. – The maker of weight management products popped up our ‘hot by options volume’ market scanner this afternoon due to heavier than usual activity in May and June contract call options. Shares in Owing Mills, MD-based Medifast increased as much as 2.4% at the start of the session to touch an intraday high of $20.25, but currently stand just 0.10% higher on the day at $19.80 as of 12:35pm in New York. Medifast is scheduled to report first-quarter earnings after the final bell on Monday. At least one trader initiated a bullish bet on the stock ahead of the earnings reveal. It looks like the investor picked up 1,000 in-the-money calls at the June $17.5 strike for a premium of $3.05 each, and sold the same number of calls up at the June $22 strike at an average premium of $0.725 apiece. The net cost of buying the spread amounts to $2.325 per contract. Thus, the trader is poised to profit should MED’s shares rally above the effective breakeven price of $19.825 by expiration day. Maximum potential profits of $2.175 per contract are available to the call-spreader if shares soar 11.0% over the current price of $19.80 to exceed $22.00 at expiration next month. Call options transacted in the front month occurred roughly 10 minutes before the call spread was purchased in the June contract. The investor here may be rolling a previously established position in May $18 strike calls up to the May $22 strike.

Andrew Wilkinson

Senior Market Analyst


Caitlin Duffy

Equity Options Analyst


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