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Option Idea of the Week: Biogen Idec

Will BIIB extend its fall from grace?

by 11/9/2012 1:39 PM
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While the broader equities market has suffered in recent weeks, the shares of Biogen Idec Inc. (NASDAQ:BIIB - 138.04) have suffered a little more. In fact, the biotech stock has underperformed the S&P 500 Index (SPX) by more than seven percentage points during the past 40 sessions, and has surrendered more than 12% since tagging a record peak of $157.18 in late September. And although the shares are paring a portion of their recent losses in today's session, the equity is poised to close a second straight week south of its formerly supportive 10-week and 32-week moving averages, which could now switch roles and act as technical roadblocks.

Weekly Chart of BIIB since August 2011 With 10-Week and 32-Week Moving Averages

Regardless of its recent fall from grace, Wall Street remains firmly in the bullish camp -- which could come back to bite BIIB, from a contrarian standpoint.

In the options pits, traders have bought to open almost five BIIB calls for every put on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) during the past two weeks. What's more, the stock's 10-day call/put volume ratio of 4.61 stands higher than 85% of all other readings of the past year, suggesting option buyers have initiated bullish bets over bearish at a much faster pace than usual.

In the same vein, the security's Schaeffer's put/call open interest ratio (SOIR) of 0.76 indicates that calls are more prevalent than their put counterparts among options expiring within three months. This ratio sits just 17 percentage points from a 52-week low, implying that near-term options players have rarely been more call-biased during the past year. A sentiment shift among options traders could also work against BIIB.

Elsewhere on Wall Street, short interest accounts for less than 1% of BIIB's total available float, pointing to little sideline cash to fuel a notable rebound.

Meanwhile, the stock boasts 11 "strong buys" and one "buy" rating from the analyst crowd, compared to eight lukewarm "holds" and not one "sell" or worse recommendation. Similarly, the consensus 12-month price target on the equity rests at $157.22 -- which would mark a record high for BIIB. Should the security extend its retreat, a round of downgrades and/or price-target reductions could exacerbate selling pressure on BIIB.

Investors anticipating more downside for BIIB should consider buying the stock's in-the-money January 150-strike puts, which were last asked at $14.70. However, more-conservative traders could limit risk -- but cap their maximum reward -- by simultaneously selling the out-of-the-money January 130-strike puts, which were last bid at $3.40.


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