Back in November, Anheuser-Busch InBev (BUD) agreed to pay more than $100 billion to buy competitor SABMiller in one of the largest deals of the year. Despite trading in a nearly 30% range in 2015, BUD closed up 10% in 2015. This year it is down 6%.
Today when the stock was $118.14 a trader paid 80 cents for 20,000 of the February 130 calls to open, or $1.6 million in premium. These calls break-even at $130.80 on February expiration up about 10% from the trading level. The break-even is above the all time high made in November:
BUD’s close today below $120 places it below technical support dating back to early 2015, with the double bottom lows from August and September now in sight.
As for the trade, I have to offer our usual caveat when it comes to unusual activity, we have no idea what the intent of the trader was in this call purchase, possibly a stop on a short position, leverage for an existing long position or pure speculation, who knows. I highlight the trade because it is fairly chunky, despite only being a 15 delta option, basically the options market is saying there is less than a 15% probability that these calls are in the money on February expiration. I guess the most interesting take-away is that this call purchase does NOT capture BUD’s Q4 earnings that are scheduled for February 25th, the week after these calls expire.
Back to the chart, BUD has just broken a long term uptrend, and is now below near term support:
This potentially bearish technical set-up speaks to defined risk bullish plays for those inclined to play from the long side, but possibly better served with something with higher odds of success. The chart below of one year at the money implied volatility shows that short dated options prices are quite reasonable at 27%, at about the mid point of the one year range: