Bullish trading in Baidu, Merck leads the Dow, Bad news for Monsanto, Big VIX spread, Bullish Risk-Reversal BofA

MP3 File

Some less actively traded names seeing bullish order flow: Big 5 Sporting Goods (BGFV), Coldwater Creek (CWTR), Sotheby’s (BID) Bearish order flow: CVB Financial (CVBF), Helix Energy Solutions (HLX), McKesson (MCK) Post Earnings: Linear Tech (LLTC), Big 5 Sporting Goods (BGFV), Xyratex (XRTX) Pre-Earnings: Clarcor (CLC), Intel (INTC). Ex-Div: Oracle (ORCL).

*Scanning all single-stocks subject to 2500 contracts minimum call or put volume

Big Prints in Pfizer (PFE). Shares hit a new 52 week high, now up 42 cents to $19.19, and an investor sells 110K Jan11 $15 calls to buy 85K Jan12 20 calls at $2.12. Looks like a roll from 2011s to 2012s, up in strikes. Shares appear to be benefiting form a Merck upgrade today — see 13:24 color — and this investor might be banking profits on the strength, but adjusting the position to maintain upside exposure to PFE for another year.

Merck (MRK) hit a new 52-week high and is up $1.51 to $39.06, the best gainer in the Dow Jones Industrial Average, after Credit Suisse upgraded MRK to Outperform from Neutral. They also raised their price target on the stock to $47 from $35, saying that the product story will bring upside, with better visibility over the next 6 to 24 months. Shares are up 4 percent and 41K calls traded. Jan 39 and 40s are the most actives, with two-sided (buying and selling) seen ahead of this week’s expiration. Feb 39, Jan12 40, Apr 40, Jan11 40, and Jan 36 calls are seeing interest as well. IV in MRK is down 2 percent to 22.6 percent and probing recent 52-week lows.

*Scanning all single-stocks subject to 2500 contracts minimum call or put volume

Two of the top trades so far today: 25000 Feb 16 – 17 risk reversals on Bank of America (BAC). Shares are up 20 cents to $16.56 and the investor paid 3 cents to buy calls, sell puts. Doesn’t look tied. Recall that, in a risk-reversal, the investor is buying calls (or puts) and selling puts (or calls). In this case, they’re buying the two strike prices that are closest to the current stock price and are poised to make money if BofA shares rally through the February expiration (37 days). I will discuss the potential risks and rewards of this strategy in today’s Podcast.

Baidu (BIDU) rallied $46.10 to $432.59 and BIDU options are heavily traded after Google (GOOG) said it might pull out of China due to cencorships. BIDU seems to be a benefiary of the news and 55K options already traded on the Chinese Internet company, including 33K calls and 22K puts. Action is mostly in the front month — puts and calls with strike prices ranging from 400 to 450. Related story from NY Times.