Mike Khouw Sees Unusual Options Activity In Merck

On CNBC's "Options Action," Mike Khouw said he saw well over two times the average daily options volume in Merck & Co., Inc. MRK on Thursday. Calls significantly outpaced puts in the name.

The unusual activity was related to a single trade. Khouw noticed a purchase of 15,000 contracts of the December $75 calls for a dollar and a sale of 15,000 contracts of the December $82.50 calls for 50 cents. The trader has also bought 10,000 contracts of the December $65 puts.

Khouw believes the trader is rolling down the long position in the December $82.50 calls as the stock declined. He explained that many institutional holders own calls on top of their equity positions so the purchase of puts might be a hedge for a long stock position.