Options guru Jon Najarian scours the markets for unusual trading activity, ready to pounce on opportunities that signal trading entries. Here, he ferrets out two companies that have recently seen an upswing in interest...
"Nektar Therapeutics (NKTR NASDAQ GS) has recently seen unusual trading activity in its call options.
"The company hired Howard W. Robin as its new president and CEO, and since he held the same position with Sirna Therapeutics (which was recently acquired by Merck), I'd say it has an "in" with one of the largest drug companies in the world. Our unusual-volume-tracking program shows upward of 3,600 of the NKTR Feb 15 calls trading virtually exclusively on the offer price, which means they were purchased. Only 45 out of those 3,600 calls were sold on the bid, so we've got a pretty strong reading that there could be some serious upside in store.
"Tell your broker to buy the NKTR Feb 15 Calls (QNXBC) for up to 85 cents. The stock is currently trading above $14.50, so as long as this price holds for just the next few weeks, this small company could bring big profits. Set your sell stop at 50% down in case the trade turns in the wrong direction--in this case, at 40 cents.
"Toolmaker Black & Decker (BDK NYSE) will release Q4 results on Tuesday, Jan. 30. That means the January options are not in play for this earnings announcement, as they will expire just before the numbers come in.
"Shares of BDK fell more than 10% on Dec. 15, when the company cut its '06 forecast for the third time. However, that bearish sentiment looks to be a thing of the past, because volume has expanded in its January and February options. For January options, 3,737 call contracts traded versus a total of 523 total calls that changed hands recently, and average daily call volume was 396 contracts.
"The call volumes trading at the $85, $90, and $95 strike prices in the February options are also each equal to (or above) the total daily average trading volume in BDK calls. Lastly, there was an unconfirmed rumor that BDK was being looked at by a private-equity group. I think this is a great opportunity to place our bets on the prospect that something big might be coming.
"The stock is currently trading at $82, so let's go with the next-higher call price that's been capturing HeatSeeker's attention. Thus, I recommend telling your broker to buy the BDK Feb 85 Calls (BDKBQ) for $1.75. A 50% sell stop from this level, then, would be 85 cents."