Elan Shares Spike on JNJ Investment News

By Chris.McKhann

Rumors turned to reality this morning, as Elan (ELN) shares jump in the pre-market on news that Johnson and Johnson (JNJ) will invest $1 billion in the biotechnology company.

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Elan is up some 23 percent in the pre-market this morning, trading at $8.60. Yesterday’s action had the stock up 10 percent to close the regular session at $7, making up the losses from the previous day. Shares have bounced between $5 and $9 since October 22 after dropping from $33 to $10 in just four trading sessions a year ago.

At least one person apparently saw the writing on the wall, as the options action was unusual. More than 15,000 of the August 7 calls changed hands. The trading went on throughout the day, with more than half that volume going off in the morning in two blocks for $0.75 and another institutional-size trade in the afternoon for $0.95. The open interest was 5,977, so the trades indicated fresh buying of new positions.

Those calls are now $1.86 in the money, and with the time value, they will have at least doubled in value overnight.

(Chart courtesy of tradeMONSTER)