In order to clip the fat cash dividend off of Merck’s common shares, many institutional holders are arranging largely riskless trades in Merck. Riskless, from a stock price perspective, that is. The goal here is not to lose money on the price of the stock — while clipping off that fat Merck dividend payment right.
So, traders are buying and selling (or actually writing) both puts and calls, pivoted around Merck’s current price, agreeing that if the stock price doesn’t move at all, all they will be out is the premium. This is driving up volumes, and distorting normal market trading.
But it will all be over at the end of the trading day, on the 13th — as the ex-date will have come, and gone. Institutions looking for a painless way to fund quarter-end cash redemptions in their funds’ portfolio, will likely put on some of these trades — Merck is a steady, stable bet on which to make such a move. And it raises cash effortlessly. Now you know.