Merck Bulls Have High Hopes for Covid Pill

Good morning, Power Profit Traders!

I’ll be doing more LIVE trading than ever starting this week, so make sure you’re keeping an eye on your inbox and following the Money Morning LIVE schedule so you never miss my real-time streaming!

In fact, you can catch me right here at 11 a.m. ET TODAY, just after my buddy Chris “CJ” Johnson at 10:30 a.m. ET.

That said, the month of September lived up to its reputation as an ugly month for stocks. The Dow Jones Industrial Average (INDU), S&P 500 Index (SPX), and Nasdaq Composite (IXIC) ended their worst month of 2021 with losses of 4.3%, 4.8%, and 5.3%, respectively.

However, October got off to a bullish start on Friday — and that may be an understatement.

It will be interesting to see if investors come back to this market and push stocks back to their highs, extending that recent October seasonality trend.

If not its highs, maybe the SPX can at least get back above its 50-day Simple Moving Average (SMA) that broke last month?

SPX with 50-day SMA

Of course, there’s always a chance that what happened Friday was due to short covering before the weekend…

If momentum is really swinging back in the bulls’ favor, we need confirmation in the form of some follow-through this week.

And that is why today I’m looking at the Unusually High Call Option Volume list from the TG Suite’s Money Report — to see which stocks the bulls are circling right now… including pharma titan Merck (MRK).

If you didn’t catch me LIVE last Thursday, you can watch the replay here, where I walk users through the Morning Report tools in the TG Suite.

For the Unusually High Call Option Volume list, I’m searching for the options — not the stocks — that saw excessively high volume in a day.

Catch the full replay here

That said, I would have expected the top spot on the Unusually High Call Option Volume list to go to Merck (MRK), considering the news on Friday.

If you didn’t hear, MRK shares skyrocketed after the firm said its new antiviral pill slashed the risk of hospitalization or death by 50% for patients with Covid, per data from a clinical trial.

Dr. Fauci said the Food and Drug Administration (FDA) will review the oral pill’s data quickly for emergency use authorization.

As such, MRK’s $90-strike call option expiring Jan. 21, 2022, saw unusually high volume on Friday, ranking No. 2 on the watchlist.

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Buyers of these calls expect MRK shares to skyrocket north of $90 before the options expire.

On Friday, the stock settled at $81.40, gapping more than 6.3% higher on the day. The shares jumped above a recent ceiling at $80, but have a ways to go before getting to the $90 level.

MRK chart from the Morning Report

As you can see, it was actually tech company HP Inc (HPQ) that took the No. 1 slot on today’s watchlist.

Specifically, more than 14,000 of HPQ’s weekly Oct. 22 $28-strike calls changed hands Friday, for roughly $1.14.

These call options are basically at the money (ATM) — meaning the strike is roughly in line with HPQ’s current price. The shares closed Friday at $28.07.

HPQ chart from the Morning Report

These options expire just two days after HP Inc’s scheduled Analyst Meeting on Oct. 20, per the company’s Investor Relations page.

Perhaps those call buyers are expecting some good news to help HPQ establish a floor at $28?

No one knows for certain, but it’s worth keeping an eye on…

Now, go watch me on Money Morning LIVE right here at 11 a.m. ET, Power Profit Traders!

Tom Gentile
America’s #1 Pattern Trader, Power Profit Trades

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