November put buying suggests further drop.
The November 15th $8 put options on Teva Pharmaceutical (TEVA) saw over 17,000 contracts trade against a prior open interest of 243, indicating a 70-fold surge in volume on the trade.
With shares of Teva around $7, the $8 puts are already $1 in-the-money and should move penny-for-penny with any further drop in shares. At a cost of $1.44, the option also has about a penny a day in time premium attached to it.
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Shares of Teva have slid by 68 percent in the past year, and the company has some liability stemming from opioid-related pharmaceutical products.
Action to take: We see further weakness in shares, both due to the company’s poor fundamentals right now and the uncertainty over opioid lawsuits among others. While most of the drop is already priced in, shares are likely to trend down before moving higher. Investors should look elsewhere in the healthcare and pharma space right now and avoid anything with a tie to opioids.
Speculators may want to join in on this short-term bet for a further drop. As Teva next reports earnings in late November after the option expires, however, a put option going out to January, like the January 2020 $6 puts, may provide a better opportunity to continue riding shares down.