King Pharma Marches Higher

By David Russell

Call volume surged in King Pharmaceuticals (KG) yesterday as the drugmaker continued to march higher.

In the largest trade, an investor sold an existing position in 2,000 November 12.50 calls for $0.05 and purchased 2,000 December 12.50 calls for $0.20. The trade cost a net $0.15 and gave the investor month an extra month of exposure to the stock, which is up 92 percent from its March lows.

Other investors bought the December 12.50 calls outright, driving volume in the strike to 10,992 contracts--more than 40 times open interest. Institutional-sized paper traded for $0.20 to $0.50. Overall in the session, 20,801 calls changed hands, outnumbering puts by 14 to 1.

KG rose 5.09 percent to $11.76 yesterday, closing at the highest price since September 2008. The company has been beating analysts' forecasts as it reinvents itself after the purchase of Alpharma last year, focusing on specialized branded drugs, animal medicines, and self-injector devices. Its last earnings report was on Nov. 5.

The bullish activity in KG made it stand apart from the market yesterday, as Pete wrote early in the session. The stock was up just 1 percent when the first bullish options trade occurred. It then proceeded to rally further, even though the S&P 500 lost as much as 1.9 percent of its value during the day.

(Chart courtesy of tradeMONSTER)