How Options Trading May Impact Genzyme Post-Merger Trading (GENZ, SNY)

It has finally happened.  Genzyme Corporation (NASDAQ: GENZ) is being acquired by Sanofi-Aventis (NYSE: SNY).  The deal should trade at a premium to the $74.00 cash component due to what is called the Contingent Value Right.  That gets the total value closer somewhere higher based upon the terms laid out by the agreement.

Here is what traders and investors need to know about and care about.  There was a huge amount of concern that Henri Termeer would manage to drive Sanofi-Aventis away.  So arbitrage spreaders and investors who were sitting on great gains were buying PUTS to protect the position.  The open interest for the FEB-2011 was almost 190,000 contracts in the available PUTS alone.  The open interest in the CALLS was for FEB-2011 was about 100,000 contracts. On Monday, that open interest was reaching a record.

The MARCH-2011 CALLS had a larger open interest than the PUTS due to the time value and betting patterns of investors when it comes to M&A investing.  This might not matter as much as it would have if the merger would have hit a terminal snag, but it is what traders and investors need to know now.

If you want to know which other biotech outfits may be acquisition targets, we created a list of about 15 potential biotech M&A targets for BioHealthInvestor.com at the end of January.  Nothing has changed as far as that list is concerned.

JON C. OGG