King Options Surge on Takeover Rumors

King Pharmaceuticals (KG) shares may have surged higher on buyout rumors, but the options on the stock were the real story. The August 12.50 calls nearly tripled in value on Tuesday with some 11,632 option contracts trading hands. All in all, 21,526 option contracts traded hands, which is more than 16x the average daily volume of 1,331 contracts. The million dollar transaction with a 10-day timeframe has many investors confident that there is more here than just speculation.

Bloomberg News broke the story, citing several sources seeing a major short-term catalyst in the stock. Frederic Ruffy, senior options strategist at WhatsTrading, noted that there’s chatter about possible interest from Pfizer and that people are positioning themselves for some kind of catalyst in the short term. Tuesday’s trading activity definitely supports such a notion with the 12.50 calls being so heavily traded.

King Pharmaceuticals is a vertically integrated pharmaceutical company that performs basic research and develops, manufactures, markets and sells branded prescription pharmaceutical products. The firm makes money on its Altace blood-pressure pills, but recently shifted its focus to painkillers after its patent was taken away. Currently, the drug-maker is licensing rights to a new form of often-abused painkillers that resist tampering. King and its partner Acura insist that this market will reach $1 billion in annual U.S. sales.

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