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Questcor Pharmaceuticals Bears Predict Near-Term Losses

QCOR sees an influx of January put volume

by 12/26/2012 2:01 PM
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Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR - 29.59) has been hammered with bearish attention in the options pits today, as roughly 11,000 puts have crossed the tape so far. This is more than eight times the norm, and about six times the number of calls exchanged. Garnering the most attention has been the January 2013 27-strike put, where north of 3,800 contracts traded at a volume-weighted average price (VWAP) of $1.20.

Digging deeper into the data, it appears that most of the puts changed hands at the ask price, pointing to buyer-driven activity. Since today's volume outstrips current open interest levels at the 27 strike -- and implied volatility has spiked more than 24 percentage points during the course of the session -- it's likely that new bearish bets are being placed here. By purchasing these puts to open, speculators are counting on the equity to retreat below breakeven at $25.80 (strike price less the VWAP) by January expiration. This represents a 12.8% drop from the stock's current price.

This favoritism toward puts over calls is nothing new for the biopharmaceutical concern. QCOR's Schaeffer's put/call open interest ratio (SOIR) checks in at 1.44, indicating puts easily outnumber calls among the front three-months' series of options. In fact, this ratio is just 10 percentage points shy of a bearish peak, meaning near-term options players have rarely been more put-heavy toward the security during the last 12 months.

This pessimism toward QCOR isn't surprising, considering the security's year-to-date loss of about 29%. Nevertheless, there are a number of bullish holdouts among the brokerage bunch. The stock sports no fewer than five "strong buy" endorsements, compared to two "holds" and zero "sells." Even more telling, the equity's average 12-month price-target of $41.86 represents expected upside of more than 39% from Monday's closing price of $30.04. This leaves QCOR vulnerable to downgrades and/or price-target cuts down the road, which could pressure the shares lower.


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