GlaxoSmithKline (GSK - option chain) shares are rising today after the FDA Advisory Committee voted in favor of keeping GSK's diabetes drug Avandia on the market, despite concerns that the drug could increase the risk of cardiovascular disease. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on GSK.

GSK opened this morning at $37.06. So far today the stock has hit a low of $36.77 and a high of $37.16. As of 12:10, GSK is trading at $37.06 up 0.71 (2.0%). The chart for GSK looks neutral and S&P gives GSK a neutral 3 STARS (out of 5) hold ranking.

You do not get too many instances where stocks rally for six straight days. This unofficial verdict was up on the day for a seventh day, but this was a sloppy rally today that literally came down to the closing bell. Earnings season got off to a good start, but weak retail data and a lowered 2010 economic recovery target out of the FOMC Minutes took away the gains that were in place earlier today. The good news is that the fears of a double dip recession seem to have been overdone.

Here were today's unofficial closing bell levels:

Dow 10,366.72 +3.70 (0.04%)
S&P 500 1,095.17 -0.17 (-0.02%)
Nasdaq 2,249.84 +7.81 (0.35%)

Top Analyst Calls

According to The Wall Street Journal, confidential studies from the Food and Drug Administration officials show that GlaxoSmithKline's (GSK) diabetes medicine Avandia needs to be pulled from the market because it is linked to heart attacks.

These studies were part of a bipartisan report on the diabetes drug conducted by Senate Finance Committee members Chuck Grassley (R - Iowa) and Max Baucus (D - Montana). In a statement from GSK, the company noted that it has extensively studied Avandia in more than 52,000 patients, noting that none of its reports show a "statistically significant association" between Avandia and heart attacks.

GlaxoSmithKine (NYSE: GSK) may get to sell its diabetes drug Avandia in the US. The FDA and independent researchers say that the drug can increase risk of heart attack, but the drug may be put on the market with a warning label.

The reason for approving the drug for future sale is that FDA "panel members said that studies concerning Avandia were too murky to merit drastic regulatory action and that other diabetes medicines might have similar risks," according to The New York Times. But, one safety officer at the agency said the drug was responsible for as many as 200,000 strokes and heart attacks from 1999 to 2006.

All of this seems more than a bit bizarre, given that one of the major roles of the FDA is to protect US citizens from companies like GlaxoSmithKline who want to make money on drugs that are not always expensive. To say that the risk of heart attack or stroke are no greater than they are with other drugs is akin to saying a car company does not have to put airbags in it vehicles because it will only kill people at the same rate as all other auto firms that market cars without airbags.

The FDA decision is shameful, even if its allows GSK shareholders an "out". The company's shares are already near 52-week lows.

Trading health for profits seems to be a bad bargain.

Douglas A. McIntyre is a partner at 24/7 Wall St.

GlaxoSmithKline (NYSE: GSK) volatility elevated into 7/30 Food & Drug Administration-FDA meeting on Avandia.

• GSK closed at $49.63. A FDA advisory committee meeting on 7/30/07 will review the heart risks of GSK's diabetes drug Avandia.
  
• The New England Journal of Medicine carried a story on 5/21 saying, Avandia "significantly increases" the risk of heart attack.
  
• GSK August option implied volatility of 35 is above its 26-week average of 20 according to Track Data, suggesting larger risk.

American Home Mortgage (NYSE: AHM) volatility elevated into delayed dividend payment.

• AHM invests in mortgage-backed securities and mortgage loans.
  
• AHM announced after the market close on 7/27/07 it will delay payment of its dividend on it common stock to preserve liquidity.
  
• Freidman Billings says: "We are lowering our price target on AHM to $3.00 from $15 to reflect the uncertainty of the unprecedented liquidity events in the overall market and issues specific to AHM's REIT structure."
  
• AHM August implied volatility is at 163; puts are at 198; above its 26-week average of 56 according to Track Data, suggesting larger price risks. AHM puts are priced higher than calls on AHM being difficult to borrow.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Gap Inc. (NYSE: GPS) volatility Elevated into new CEO. GPS, the San Francisco based parent company of 3,200 Gap, Old Navy, and Banana Republic stores, appointed Glenn Murphy, 45, to serve as GPS's Chairman and CEO and as a member of the Board of Directors. Smith Barney upgraded GPS to Buy. SBSH says: "The new CEO can positively impact customer focus and in-store experience." GPS over all option implied volatility of 31 is above its 26-week average of 29 according to Track Data, suggesting larger price fluctuations.

Target Corp. (NYSE: TGT) volatility increases; TGT sells off after Ackman announces position. TGT closed at $62.10. William Ackman's Pershing Square owns a 9.6% position in TGT. Robert Ulrich, TGT's Chairman of the Board, filed to sell one million shares of TGT on 7/12 through SEC form 144. TGT August option implied volatility of 35 is above its 26-week average of 24 according to Track Data, suggesting larger price risks.

GlaxoSmithKline (NYSE: GSK) volatility Elevated into 7/30 FDA meeting on Avandia. GSK closed at $49.63. A FDA advisory committee meeting on 7/30/07 will review GSK's diabetes drug Avandia. The New England Journal of Medicine carried a story on 5/21 saying, Avandia "significantly increases" the risk of heart attack. Cowen says: "It is difficult to envision what GSK could present that would significantly alter FDA and prescriber sentiment." GSK August option implied volatility of 30 is above its 26-week average of 20 according to Track Data, suggesting larger risk.

General Motors Corp. (NYSE: GM) volatility Elevated on tighter credit and into 7/31 EPS. GM closed at $31.10. GM will report EPS on July 31st. GM August over all option implied volatility of 53 is above its 26-week average of 37 according to Track Data, suggesting larger risk.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

MAJOR PAPERS:

• The Wall Street Journal reported that CDW Corporation (NASDAQ: CDWC), a $6B market cap technology retailer, is being hotly pursued by a number of private equity firms including Madison Dearborn Partners.
• Avaya Inc (NYSE: AV), a telecommunications equipment maker, is said to be interested in selling all or part of the company, and is in talks with private equity firms and strategically interested companies, the Wall Street Journal also reported.

OTHER PAPERS:

• Dr. Ronald Krall, the medical director for GlaxoSmithKline plc (NYSE: GSK) told the New York Times that some of the 4,450 patients enrolled in the drug trial for Avandia have dropped out due to safety concerns
• Norsk Hydro ASA (NYSE: NHY) is looking at the possibility of making an offer for Canadian aluminum producer Alcan Inc (NYSE: AL), Globe and Mail reported.
• The Sydney Morning Herald reported that mining company Rio Tinto plc (NYSE: RTP) has hired Deutsche Bank AG (NYSE: DB) to advise it on a possible bid for Alcan.

WEBSITES:

• According to a report from Chinese-language Commercial Times and noted in DigiTimes, Quanta Computer has reportedly received an order for five million iPhones from Apple Inc (NASDAQ: AAPL) and that the 2nd generation device will offer "a different outer design to fit different markets."