What's behind big call activity in Pfizer

optionMONSTER

Pfizer is drawing heavy call action as it trades just off three-year highs, and there are at least two possibilities behind the activity.

PFE is up 0.46 percent at $24.09 in morning trading. The pharmaceutical giant posted a three-year closing high of $24.28 two weeks ago as it continued to climb from a 52-week low of $17.05 set at the start of October.

optionMONSTER's systems show that 35,000 September 25 calls were sold against open interest of more than 63,000. Seconds later, 35,000 October 25 calls were bought for the ask price of $0.27 at volume that was more than 3 times open interest.

This is likely one of two things, depending on whether the September calls were sold to open or close a position. If they were sold to close, the trader is rolling a position out from September to October. Given that September is set to become the front-month expiration, the time of the greatest time decay, this interpretation would make sense.

But if those calls were sold to open, this is a new calendar spread. That would profit if the underlying stock trades in a range around the strike price and faces limited losses if it moves too far in either direction. Calendar spreads capitalize on the time decay differential between expiration months.

The option volume in PFE already tops 74,000 contracts, only 1,661 of which are puts.

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