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Merck draws puts before earnings

Traders are showing caution in Merck before it reports earnings next week.

optionMONSTER's Depth Charge system detected the purchase of 6,000 August 56 puts for $0.46 to $0.48 this morning. This is clearly fresh buying, as open intrest in the strike was a mere 53 contracts before the trades appeared.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position. (See our Education section)

MRK is down 0.83 percent to $57.59 today. The pharmaceutical giant is in the middle of a range that has been in place for the last six weeks, with resistance at its 50-day moving average around $59. The company is scheduled to announce quarterly results Tuesday morning.

Today's total option volume in the name is nearly double its full-session average for the last month. Overall puts are outpacing calls by more than 4 to 1.


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