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Drug Rejection Draws Out Pfizer Bears

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PFE April 28 put most popular trade on the day.

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Drug maker Pfizer (NYSE:PFE) has been marching up the charts all year, but a bit of bad news Tuesday might have brought bearish investors out in force. Puts on Pfizer were trading at levels 37% above normal, including the most popular trade on the day -- the April 28 put.

This strike saw nearly 8,100 contracts change hands, and 81% traded at the ask price. In addition, implied volatility ticked up and open interest spiked overnight, indicating that at least some were purchased to create new positions. The volume-weighted average price (VWAP) on this ticker was $0.19 yesterday, meaning that PFE shares need to drop below $27.81 (strike price minus VWAP) by the expiration day of April 19 for the trades to be profitable.

As stated previously, PFE has had a slow but steady climb over the last 12 months, adding 27% to its value. Pfizer is also up nearly 14% this year alone, although did get a spot of bad news yesterday when English regulators rejected a new lung cancer pill as being too expensive for the market.

But these bearish investors are swimming against the tide of overall sentiment in the option markets. The 50-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) for PFE is 3.15 -- and that is in the top 81% of readings taken in the last year. That shows that traders are buying calls to open at a relatively accelerated rate as compared to puts over the last 50 trading days. In addition, PFE short interest dropped by 12.8% during the last month, showing increased confidence in the stock as well.

This article by James Pilcher was originally published on Schaeffer's Investment Research.

Below, find some more great content from Schaeffer's Investment Research:


Daily Game Plan – European Fears Linger

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Twitter: @schaeffers
No positions in stocks mentioned.
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