Investors Roll Pfizer Expiration Dates Early (PFE)

Pfizer Inc. (NYSE: PFE) is seeing a very early expiration roll so far in August, right ahead of earnings. The stock is generally one of the less volatile out there. The pharmaceutical giant is a member of the Dow Jones Industrial Average and is a well-known global brand. After the Wyeth acquisition it became even larger. The stock has been bound since the end of 2008 in a $15.00 to $20.00 price range, except during the peak of the selling (and immediate aftermath) of early 2009.

The surprising issue almost every month is that Pfizer’s stock options tend to have one of the highest open interests among stock options. More surprising is that Pfizer often shows up as the most actively traded series of calls and puts at the CBOE on many trading days. Despite low price volatility, investors are extremely active in Pfizer stock options.

Investors appear to be rolling option expiration dates early this month in Pfizer while there is still some time value in the options. With earnings announced on Tuesday this week, it seems investors may be getting out of the way of the news. August 2010 expiration is on August 20, while September expiration is on September 17, still more than six weeks from now. Normally a stock would generate larger speculation ahead of earnings news. Now, it looks like a rolling out to a later expiration instead.

Monday was one of the days where Pfizer was the most active of the actively traded contracts at the CBOE per the snapshot here of the CBOE most actives. The snapshot from Yahoo! Finance shows options trading from all exchanges and shows 42,418 contracts for the August $15.00 calls and 36,582 contracts for the August $16.00 calls. Looking at the September call option expiration, there were 21,642 of the $15.00 calls and 8,685 of the $16 calls.

In general, the January puts and calls in most active stock options tend to have the largest open interest in the longer-dated option expiration months than compared to other months. The January 2011 options as displayed in the Zecco Options Screener show that January 2011 has extremely high open interest. As of Monday, the $15.00 strike calls have an open interest of over 158,000 contracts. The $20.00 calls have an open interest of more than 322,000 contracts. The put options are less active, but the $15.00 puts still have an open interest of over 228,000 contracts. This suggests that the options interest in Pfizer is likely to stay high.

There also is an options and stock traders theory that stocks with active stock options tend to move toward the closest strike price going into each option expiration date. One study shows how this “price clustering” can change through time. If this rolling out to September from August continues at this rate, then stock options trading may have a much lower impact on pulling shares to the closest strike price on the August expiration date.