Wednesday, March 28, 2012

Amylin Pharma (AMLN) - Takeover Sees "Fortuitous" Trade One Day Before

AMLN is trading $22.72, up 47.6% with IV30™ up 32.4%. The LIVEVOL® Pro Summary is below.


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Amylin Pharmaceuticals, Inc. (Amylin) is a biopharmaceutical company focusing on the diabetes and other metabolic diseases through the discovery, development and commercialization of medicines.

This is an interesting order flow note -- some skills of "premonition" may be at work... or not. Let's start with the news that's pushing the stock up nearly 50%:

NEW YORK (AP) -- Shares of Amylin Pharmaceuticals Inc. jumped Wednesday on a report the diabetes drugmaker recently turned down a buyout offer from Bristol-Myers Squibb Co. worth $3.5 billion.

Bloomberg reported that Bristol-Myers proposed to buy Amylin for $22 per share. It said there have been no talks between the companies since the initial offer earlier this year. Bristol-Myers Squibb and Amylin declined to comment on the story, which cited anonymous sources.

Source: AP via Yahoo! Finance -- Amylin jumps on word of offer from Bristol-Myers

Tricky... Here's where it gets interesting. Eddy Altamirano drew my attention to this curious trade -- many thanks to him. Below, I've included the Options Montage and day's biggest trades from yesterday, on close.

Focus in on the Apr 21 and Apr 24 calls. These are baby options with nickel and $0.02 bids, respectively (as of yesterday). The largest trade was a 1 x 2 for even (OK, not quite). In English, someone bought 1 Apr 21 call for every 2 (OK 2.31) Apr 24 calls they sold. Recall that the stock closed at $15.39, yesterday.

Let's turn to the Options Tab, today.

I've highlighted the options in question as of today. Using the prices (mid-market) above, that spread on a 2.31:1 ratio is actually a small loser right now. But, and this is a huge one, if the stock does close below $24 (say $22 -- the bid price), this trade is a gigantic winner. It was done for a credit and would be a 2218*100*$1 = $221,800 winner (excluding the opening credit). If the stock goes to $24, it's a $665,400 winner (excluding the opening credit). The trade is safe until $27 -- so there is upside room.

In any case -- it's an interesting trade in and of itself -- even more so with a 50% pop on a takeover bid the very next day.

This is trade analysis, not a recommendation.

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  1. Ratio spread you are referring to in this piece was closing on both legs.

  2. Are you sure? OCC seems to have reported the same OI number twice.

  3. has this been reported to the SEC?

  4. why did the open interest increase on both if they were opening?

  5. OI should increase if the trades are opening. The Apr 21 line is unchanged -- so likely a mistake by OCC.