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Bearish betting has accelerated on Pfizer Inc. (NYSE:PFE) today, as around 13,000 puts have switched hands thus far. This is a 49% mark-up over the equity's expected intraday put volume, and about 1,000 more than the number of calls exchanged. By all appearances, it looks as though one group of traders is expecting the pharmaceutical giant to retreat into territory last visited at the beginning of 2013.
Most popular has been the January 2014 26-strike put, which has seen 5,439 contracts cross at a volume-weighted average price (VWAP) of $0.60. All of these puts traded at the ask price, and implied volatility has climbed higher, hinting at newly added bearish positions. Furthermore, data pulled from the International Securities Exchange (ISE) confirms the presence of buy-to-open activity at this strike. This out-of-the-money strike has been notably popular of late; open interest rose by 3,780 contracts on Aug. 28, and by 4,089 contracts this morning.
Today's put buyers will profit with each step PFE takes below the breakeven rail of $25.40 (strike price minus the VWAP) between now and January expiration. This denotes a drop of 10.3% from its current price of $28.31. Apparently the options market forecasts a 26% chance of this happening, as the call's delta sits at negative 0.26. However, should the shares stay above the strike price over the next several months, the most today's traders risk forfeiting is the initial cash outlay.
Although Pfizer Inc. (NYSE:PFE) sports a year-to-date gain of almost 13%, the equity has experienced some struggles on the charts in recent weeks. In fact, after tagging a late July peak of $30.43, the security has since shed nearly 7% -- likely hurt by the near-$500 million fine levied on it for false advertising. Meanwhile, however, the stock remains north of its 10-month moving average, which has contained all monthly closes since October 2011. This trendline is currently hovering around $27.54.