Options Activity for Human Genome Sciences (HGSI), Merck & Co. Inc. (MRK) and Morgan Stanley (MS)
Thursday, November 11, 2010



I hope that your trading is going well, as I know that members of S.O.M.E. are making the most of the market movements and their returns.



Today's newsletter includes a look at a rise in call trading on Human Genome Sciences (HGSI), Merck & Co. Inc. (MRK) and Morgan Stanley (MS). The purpose of this newsletter is to focus on stocks seeing heavy options trading and gives you a unique insight into each stock's sentiment backdrop.

Human Genome Sciences (HGSI) Options players were focused on the shares of Human Genome Sciences (HGSI) on Wednesday, as more than 56,300 contracts crossed the tape. This surge in volume was more than three times the stock's average daily trading volume of 14,971 contracts, according to data from WhatsTrading.com. In addition, approximately 60% of the volume changed hands on the call side.



The International Securities Exchange (ISE) has seen an increase in call trading recently. During the past 10 trading sessions, more than five calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 92% of all those taken during the past 52 weeks, pointing to a growing optimism.

However, optimism has a way to grow toward the shares. The Schaeffer's put/call open interest ratio (SOIR) comes in at 0.87, which is higher than 73% of all those taken during the past 52 weeks. In other words, short-term options players have been more pessimistically aligned toward the shares only 23% of the time during the past 52 weeks.

Elsewhere, we find that short sellers are adding to their pessimistic positions. During the past month, the number of HGSI shares sold short increased by 4.4% to 11.1 million shares. This accumulation of pessimistic positions accounts for 5.9% of the company's total float.

Finally, Wall Street is smitten, as 14 of the 15 analysts following the company rate it a "buy" or better. This configuration leaves the shares vulnerable to potential downgrades.

Technically speaking, the shares of HGSI are down more than 20%. The stock has fallen into a sideways consolidation between support at the 20 level and resistance at the 35 level. The equity is currently consolidating above potential support at its 20-month moving average.



Merck & Co. Inc. (MRK)

Options trading was heavy on the shares of Merck & Co. Inc. (MRK) on Wednesday, as more than 49,100 contracts changed hands. This surge in volume was more than double the stock's average daily trading volume of 20,569 contracts, according to data from WhatsTrading.com. Furthermore, roughly 72% of the volume changed hands on the call side.



Options players have been showing a growing preference toward calls on the security. The ISE reports that 1.9 calls have been purchased to open for every one put purchased to open during the past 52 weeks. This ratio of calls to puts is higher than 72% of all those taken during the past year, indicating a growing optimism.

Furthermore, the SOIR for MRK comes in at 0.85, which is lower than 79% of all those taken during the past 52 weeks. In other words, short-term options players have been more optimistically aligned toward the shares only 21% of the time during the past 52 weeks.

Wall Street is also a fan of MRK. According to Zacks, the stock has earned 12 "strong buys," two "buys," and four "holds." From a technical perspective, the shares of MRK are down more than 4% since the beginning of the year. The shares of the security have recently rolled over from resistance at the 38 level and fallen under support at their 10-week and 20-week moving averages.



Morgan Stanley (MS)

Morgan Stanley (MS) announced Wednesday that it has agreed to sell its 6.7% stake in Invesco Ltd. (IVZ) back to Invesco. MS received 30.9 million Invesco shares and $800 million in June when it sold its Van Kampen Investments business to Invesco.

Morgan Stanley (MS) was the center of some brisk options trading on Wednesday, as more than 79,600 contracts crossed the tape. This surge in volume was more than three times the stock's average daily trading volume of 26,221 contracts, according to data from WhatsTrading.com. What's more, options players were feeling optimistic as 80% of the volume changed hands on the call side.



The ISE has reported an increase in call trading, as three calls have been bought to open for every one put bought to open during the past 10 trading sessions. This ratio of calls to puts is higher than 84% of all those taken during the past 52 weeks.

However, not everyone is on the stock's bullish bandwagon. The SOIR for MS comes in at 1.34, as put open interest outnumbers call open interest among options slated to expire in less than three months. This ratio of puts to calls is higher than 75% of all those taken during the past 52 weeks. In other words, short-term options players have been more pessimistically aligned toward the shares only 25% of the time during the past 12 months.

Wall Street is slightly split in its outlook for the shares. According to Zacks, the stock has earned 13 "strong buys" and nine "holds" or worse. Technically speaking, the shares of MS are down more than 10% since the beginning of the year. The security has dropped back below resistance at its 10-month and 20-month moving averages. These trendlines had pressured the security lower from November 2007 through August 2009.





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