AMGN – Amgen, Inc. – The U.S. Food and Drug Administration’s approval of Amgen’s bone-strengthening drug, Prolia, yesterday fueled the 9% rally in the biotechnology firm’s share price to $55.35 today on optimism the drug may boost the company’s sales and revenue. The FDA’s approval of Prolia follows the May 28 approval by European regulators. Bullish options traders flocked to the June contract to purchase calls at both in- and out-of-the-money strike prices. Approximately 3,400 calls were picked up at the now in-the-money June $55 strike for an average premium of $1.07 apiece. Investors holding these contracts make money if Amgen’s share price exceeds $56.07 by June expiration. Optimism spread to the higher June $57.5 strike where 1,900 calls were purchased at an average premium of $0.365 per contract. Shares of the underlying stock must rally another 4.55% in order for June $57.5 strike call coveters to profit above the average breakeven price of $57.865. Finally, uber-bulls paid just $0.09 per contract to take ownership of 1,200 call options at the higher June $60 strike price. Amgen’s shares would need to jump 8.20% over the current intraday high of $55.35 before traders long the June $60 strike calls start to accrue profits above the average breakeven point to the upside at $60.09. The overall reading of options implied volatility on the world’s largest biotechnology company is down 13.5% to 31.29% following FDA approval.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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