Friday's Top Options Alert: Bristol-Myers & Mead Johnson (BMY, MJN)

Bristol-Myers Squibb Co. (NYSE: BMY) has been a real pest in the world of analyzing options trading activity.  There has been a perpetual open interest alert with a monster contract volume in the DEC-2009 $30 CALLS and DEC-2009 $30 PUTS.  The culprit is tied to the company splitting off its approximately 83% holdings in Mead Johnson Nutrition Company (NYSE: MJN) and that is probably tied to this event plus an added index weighting change as Mead Johnson will be added into the S&P 500 Index.

It appears that after today that Bristol-Myers Squibb is finally going to drop off the radar of the most active contracts and open interest in options trading.  So far we have yet to see the trades roll out further on the calendar in 2010 to January, March, or June.

Bristol-Myers has seemed to be one of the routine largest open interest series out there.  The open interest that we reviewed last weekend for the DEC09 $30 CALLS was 633,140 contracts and the DEC09 $30 PUTS was 617,642 contracts.  This has gone opposite of what we expected too.  Rather than that open interest dwindling off, it has grown and was listed at 897,520 contracts in the DEC-2009 $30 CALLS and 908,246 of the DEC-2009 $30 PUTS.   On Thursday there were 95,050 contracts of the CALLS and 106,101 contracts of the PUTS.

Mead Johnson options have been active as well.  The DEC-2009 $50 CALLS traded 23,634 contracts on Thursday versus an open interest of 94,131 contracts.  The DEC-2009 $50 PUTS traded 25,571 contracts on Thursday versus an open interest of 94,256 contracts in the open interest.  The Mead Johnson shares traded over 15 million shares on Thursday versus an average volume of over 2.1 million shares, and that $41.96 share price compares to a 52-week range (less than a year actually) of $25.72 to $50.35.  Mead Johnson has also averaged over 10 million shares this week each day.

This would look like a straddle on a static basis in Bristol-Myers outside of this spin-off and index weighting change.  That 60 million shares on a fully leveraged basis last weekend (from the Bristol-Myers open interest) looks like 90 million shares worth of options volume on a fully-leveraged basis today.  Bristol-Myers traded 33.7 million shares on last Friday, yet Thursday’s trading volume was over 50 million shares and that has seen over 50 million shares on average each day this week.  In September and October this traded closer to 10 million shares.

The new 52-week trading range is $17.23 to $26.17, after the prior 52-week high of $25.97 was violated this week.  They say that active options trading generally makes stocks gravitate toward their closest most active options strike price as expiration gets closer and closer.  If so, Friday’s trading on options expiration date should have an interesting swing to it.

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JON C. OGG