GENZ – Genzyme Corp. – The biopharmaceutical company, which is currently knee-deep in merger negotiations with Sanofi-Aventis, attracted bullish options investors during the trading session. It looks like one trader initiated a plain-vanilla debit call spread in the January 2011 contract to prepare for the sharp increase in the price of Genzyme’s shares that’s likely to occur if Sanofi-Aventis winds up purchasing – or at least confirming plans to purchase – the drug maker before January 2011 expiration. Genzyme’s shares inched up 0.25% this afternoon to $70.52 as of 3:15 pm ET. The options player picked up approximately 6,000 calls at the January 2011 $70 strike for an average premium of $4.42 each, and sold the same number of calls at the higher January 2011 $75 strike for an average premium of $1.72 apiece. The net cost of putting on the bullish transaction amounts to $2.70 per contract. Genzyme’s shares must rally 3.1% over the current price of $70.52 in order for the trader to start to make money above the average breakeven point at $72.70. The call spreader is poised to accumulate maximum potential profits of $2.30 per contract should Genzyme’s shares surge 6.35% to trade above $75.00 by January 2011 expiration. The investor responsible for the spread will likely lose the full premium paid to purchase the transaction if GENZ is not acquired because the firm’s shares have a more than 24% premium priced in since takeover speculation began.
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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