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Minyan Mailbag: Full Court with Dr. J



Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next article, written by Minyan Jon Najarian, with that very intent.

For more of Jon's work, click here.

  • The drug stocks are rocking, with Merck (MRK) saying they see Q1 earnings coming in better than expected and options volumes and volatility both moving to notworthy levels. Eli Lilly (LLY) is up $1.08 to just a dime under the 50 strike and the at-the-money volatility is going through the roof as investors position ahead of tomorrow's patent decision for LLY's Zyprexa. I'm showing readings over 130% for April volatility versus 29 a week ago. Bulls are really buying some lottery tickets with their purchase of 16,000 of the April 55 calls, while some are either taking the contra side of the argument, or protecting existing holdings as they grab 13,000 of the April 50 puts.

  • I saw one headline today saying Harley-Davidson's (HDI) $10 drop a speed bump, but I'd say a 17% drop is more Evil Kenevil smashing into the fountain at Caesar's Palace again! HDI announced sales flattened during Q1 and the stock is indeed flat on its back at mid-session. I show the April 50 calls losing $8.15 to just $.45, but the owners of the May 50 puts have to be pleased with the 525% explosion in that investment, which jumped up from just $.30 last night to $2.40 today.

  • The institutions don't believe yesterday's rally in Apple (AAPL) and are demonstrating their pessimism by slamming the calls, in particular the 40, 42.50 and 45 calls, as over 180,000 calls trade against 92,000 puts. I show the 40 & 42.50 calls and puts pricing at 124% volatility, about three times its normal 40 ahead of tonight's earnings report.

  • Even some bullish talk from Morgan Stanley analyst Mark Newton, who said "it's time to buy" have failed to ignite a rally in the fallen auction site. Maybe the best shareholders can hope for is that at least today's positive comments may have slowed the fall! My dollar weighted numbers show twice as many dollars trading on each put trade as each call, so maybe that too is confirming that the bottom may be near.
No positions in stocks mentioned.

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