Pharmaceutical manufacturing giant Pfizer (PFE) is down 10% over the past year, underperforming the overall market. One trader sees a rebound for shares over the summer.
That’s based on the September $18 calls. With 142 days until expiration, 4,057 contracts traded compared to a prior open interest of 122, for a 33-fold rise in volume on the trade. The buyer of the calls paid $5.10 to make the bullish bet.
Pfizer shares recently traded for about $23, meaning the option is already about $5.00 in-the-money and carries nearly no premium to it. Pfizer hit a 52-week low of $20.92 recently but has started to bounce higher. Shares remain well off their 52-week high of $31.54.
With the company out of favor with the market, shares now trade at 8 times forward earnings. Revenue growth is up 22% over the past year, but that hasn’t translated to earnings growth quite yet, and the market is still skeptical about the pharmaceutical companies.
Action to take: Value investors may like shares here given their low valuation. If earnings rebound, shares could take off and provide sizeable capital gains.
At current prices, Pfizer also pays a hefty 7.5% dividend.
For traders, the September $18 calls are well positioned if the recent move higher in shares proves sustainable in the months ahead. The options could see mid-to-high double-digit returns. More aggressive traders could select a strike price that’s out-of-the-money.
Disclosure: The author of this article has no position in the company mentioned here, but may further trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.