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Merck Calls Heat Up on Earnings Beat, Guidance Boost

Lillian Currens

The shares of pharmaceutical concern Merck & Co, Inc. (NYSE:MRK) are higher today, following a second-quarter earnings and revenue beat from the company. The Dow component cited strong sales of its lung cancer treatment Keytruda, and high demand for vaccines. As such, Merck upped its 2019 earnings forecast, too. In response, MRK is up 2.4% at $84.35, and options bulls are coming out of the woodwork. 

The boost has Merck stock trading north of a recent ceiling at its 20-day moving average. Plus, the stock is just a hair away from closing the bear gap it suffered earlier this month, following President Donald Trump's threats to reverse a rebate rule. The equity is on pace for its best session since April 30. 

Analysts have looked favorably on Merck, with nine in coverage calling it a "buy" or better, while only two say "hold." What's more, the consensus 12-month price target of $92.14 represents uncharted territory for MRK, and sits at an 8.5% premium to current levels. 

The options pits were a bit more pessimistic, however. While call volume has been heavier on an absolute basis during the last 10 weeks on the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day put/call volume ratio of 0.52 sits in the 73rd percentile of its annual range. This means MRK puts were purchased over calls at a much quicker clip than usual ahead of earnings.

Today, MRK calls are flying off the shelves. Roughly 21,000 calls have changed hands so far -- five times the average intraday volume. That's compared to fewer than 5,000 Merck puts traded so far. Most popular is the August 85 call, new buyers of which expect the blue chip to muscle north of the $85 level before the front-month options expire on Friday, Aug. 16.