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Bullish Speculators Hone In on Pfizer Inc. (PFE) Ahead of Earnings

As earnings approach, PFE call volume heats up

by 4/26/2013 2:22 PM
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Pfizer Inc. (NYSE:PFE) is trending lower today, after a European committee advised regulators to reject approval of the firm's new rheumatoid arthritis drug, Xeljanz. Nevertheless, bullish traders are undaunted by the news, as approximately 31,000 calls have crossed the tape thus far -- a 68% increase over the norm. By contrast, around 21,000 puts have changed hands. With the company on tap to report quarterly earnings next week, some of these optimists may be hoping for a post-earnings surge by the pharmaceutical concern.

At the helm is the August 32 call, where more than 6,600 contracts have been exchanged -- most of them in one large block for an ask price of $0.31 each, suggesting they were bought. Since this strike presently holds open interest of just 1,222 contracts, it's probable that new bullish positions have been initiated here. By purchasing these calls to open, the speculator is counting on PFE to muscle north of $32.31 (strike price plus the initial premium paid) by August expiration -- a 7.6% increase over the stock's current price of $30.04. Meanwhile, these options sport a delta of 0.23, giving them a near 1-in-4 chance of finishing in the money.

This preference for calls over their bearish counterparts is nothing new for Pfizer, Inc. During the past month, traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 81,148 calls versus just 34,241 puts, resulting in a 20-day call/put volume ratio of 2.37. As a result, the stock's Schaeffer's put/call open interest ratio (SOIR) sits at 0.85, with calls outstripping puts among options with a shelf-life of three months or less.

On the technical front, PFE has climbed about 20% so far this year, and more than 30% during the past 12 months. In fact, the equity just tagged a near decade-plus high of $31.15 on April 23. What's more, the shares continue to trade above their 10-month moving average, which has served as support since November 2011.

As previously mentioned, the firm is due to reveal first-quarter earnings ahead of Tuesday's open, and has topped or matched consensus bottom-line projections in each of the past four quarters. Currently, analysts are expecting a profit of 56 cents per share. Another earnings win could add even more fuel to the stock's fire -- good news for today's call buyers.


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