Schaeffer's Trading Floor Blog

Bears Pick Up the Pace On a Freefalling Questcor Pharmaceuticals Inc (QCOR)

QCOR put activity has increased at a rapid rate over the past week

by 2/28/2014 1:14 PM
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It's been a terrible week for Questcor Pharmaceuticals Inc (NASDAQ:QCOR), after Tuesday night's top-line miss sent the shares into freefall. Specifically, since closing Tuesday at $78.65, the stock has shed more than 20% to churn near $62.80. Option players at the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have responded in kind, and over the past five sessions, have bought to open 11,268 puts, compared to 2,568 calls.

As a result of this recent uptick in put activity, QCOR's 10-day ISE, CBOE, and NASDAQ OMX PHLX (PHLX) put/call volume ratio has jumped to 2.90 from its week-ago reading of 0.73. What's more, the current ratio ranks in the bearishly skewed 88th percentile of its annual range, meaning puts have been bought to open over calls with more rapidity just 12% of the time within the past year.

Echoing this trend is the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.92, indicating put open interest nearly doubles call open interest among options expiring in three months or less. This ratio is ranked above 79% of similar readings taken over the last 12 months, meaning short-term speculators are more put-biased than usual toward QCOR.

In the front-month series, a number of speculators have targeted QCOR's March 65 put, and since last Friday, nearly 1,550 contracts have been bought to open here. Given today's more than 6% drop, these puts are sitting comfortably in the money with three weeks of life still left in them.

As far as the cost factor to play QCOR's front-month contracts, option players are having to pay a pretty penny, from a volatility perspective. In fact, despite the company's quarterly earnings report being out of the way, the stock's Schaeffer's Volatility Index (SVI) of 82% is ranked in the 72nd annual percentile. Additionally, in today's session, QCOR's 30-day at-the-money implied volatility has risen 11.3 percentage points to 93.1% -- a level not seen since mid-October.

Outside of the options pits, sentiment is split toward Questcor. Short interest, for example, accounts for nearly a third of the stock's available float. It would take more than 11 sessions to cover these shorted shares, at QCOR's average daily pace of trading.

However, the brokerage bunch is more bullish toward the equity. Among covering analysts, six out of seven deem the stock to be a "strong buy," with not a single "sell" suggestion to be found. Plus, the consensus 12-month price target of $87.89 sits nearly 40% above QCOR's current perch, as well as in territory yet to be explored by the security. From a contrarian perspective, a round of downgrades and/or price-target cuts amid the stock's drop could apply additional pressure to Questcor Pharmaceuticals Inc (NASDAQ:QCOR).

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