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Drug Rejection Draws Out Pfizer Inc. (PFE) Bears

PFE April 28 put most popular trade on the day

by 3/27/2013 10:36 AM
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Drug maker Pfizer Inc (NYSE:PFE - 28.58) has been marching up the charts all year, but a bit of bad news Tuesday might have brought bearish investors out in force. Puts on Pfizer were trading at levels 37% above normal, including the most popular trade on the day -- the April 28 put.

This strike saw nearly 8,100 contracts change hands, and 81% traded at the ask price. In addition, implied volatility ticked up and open interest spiked overnight, indicating that at least some were purchased to create new positions. The volume-weighted average price (VWAP) on this ticker was $0.19 yesterday, meaning that PFE shares need to drop below $27.81 (strike price minus VWAP) by the expiration day of April 19 for the trades to be profitable.

As stated previously, PFE has had a slow but steady climb over the last 12 months, adding 27% to its value. Pfizer is also up nearly 14% this year alone, although did get a spot of bad news yesterday when English regulators rejected a new lung cancer pill as being too expensive for the market.

But these bearish investors are swimming against the tide of overall sentiment in the option markets. The 50-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) for PFE is 3.15 -- and that is in the top 81% of readings taken in the last year. That shows that traders are buying calls to open at a relatively accelerated rate as compared to puts over the last 50 trading days. In addition, PFE short interest dropped by 12.8% during the last month, showing increased confidence in the stock as well.


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