Unusual Options Activity: Teva Pharmaceuticals (TEVA)

Teva Pharmaceuticals (TEVA)

Trader bets on 22 percent drop in shares by April.

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  • Put options expiring in April with a $10 strike price on Teva Pharmaceuticals (TEVA) saw a nearly-10-fold rise in volume. The option went from under 700 contracts to over 6,800.

    The bet, expiring in 57 days, is just over 20 percent out-of-the-money, as shares trade just over $12.

    The buyer of the put option also paid about $0.35 per contract, so shares would need to drop to about $9.65 to profit at expiration.

    Shares of the pharmaceutical giant have dropped 32 percent in the past year. The company also reported a loss in the past year and is expected to trade at 5 times forward earnings.

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  • Action to take: There’s a lot of negative sentiment in pharmaceutical stocks, which can’t seem to catch a break here. Despite the company’s underperformance in the past year, shares have been trending up since the autumn, and we see more upside than downside in shares here, even with the drop following a failed deutetrabenazine study.

    Investors should look to buy shares up to $13.00 to invest alongside the uptrend, which should resume.

    Speculators can buy the June 2020 $15 calls look like a reasonable bet. They trade for about $0.60 right now, but should continue to rise as the underlying share price does.

    In a run up to the company’s old 52-week high of $18, the option could go as high as $3. That’s about a five-fold return. While it may not be that extreme, buying calls rather than puts looks more attractive here.

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