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January 10, 2014  Fri 12:21 PM CT

BMY: SEE CHART GET CHAIN FIND STRATEGIES
Bristol-Myers Squibb has been running hard, and the bulls are getting greedy.

optionMONSTER's Heat Seeker monitoring system detected the purchase of about 30,000 February 57.50 calls for an average premium of $1.50. Some 22,000 January 52.50 calls were sold for $3.35 in volume below the previous open interest, so it appears that an existing long-call position was closed and rolled to a higher strike.

The investor recovered $2.87 million of his or her capital by making the adjustment and now has an additional month to profit from gains in the drug maker. The trader also increased the number of contracts in the position, which will boost leverage if the stock continues to rally. (See our Education section for more on how to manage trades more effectively with options.)

BMY is up 1.64 percent to $55.94 in afternoon trading, its highest price since 2001. The stock has been running in the last month after the company sold its stake in a diabetes-drug joint venture to AstraZeneca. It also reported strong earnings and positive data on a potential cancer drug in October.

Total option volume is quadruple the daily average so far today, with calls outnumbering puts by a bullish 9-to-1 ratio.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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