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Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR - 32.97) was heavily targeted by put players Tuesday, as option players placed eleventh-hour bearish bets ahead of last night's earnings announcement. Around 11,000 contracts crossed the tape, or more than five times the average daily put volume. Short-term skeptics scooped up the stock's weekly 3/1 27- and 30-strike puts, where a collective 3,610 contracts crossed the tape. Implied volatility at each strike soared by more than 40 percentage points, and open interest rose overnight, pointing to buy-to-open activity.
By purchasing the weekly 3/1 27-strike puts for a volume-weighted average price (VWAP) of $0.48, traders expect QCOR to finish south of the $26.52 mark (strike less VWAP) by week's end, when the options expire. At last night's close, delta for these deep out-of-the-money puts was docked at negative 0.12, meaning the options market is giving the positions a roughly 1-in-10 chance of landing in the money by week's end. Should the stock fail to drop the 18.1% needed to breach the strike price, the most the put buyers have risked is the initial premium paid.
Meanwhile, the VWAP for the weekly 3/1 30-strike puts is $1.02, making breakeven $28.98, or 12.1% below current levels. As of last night's close, delta for these closer-to-the-money puts was perched at negative 0.28, or 28%. In other words, for each dollar QCOR loses over the next three sessions, the puts will add $0.28. (Conversely, for each dollar the stock adds through the end of the week, these options will lose $0.28.)
Widening the sentiment scope reveals that option players have been bearishly skewed toward QCOR for some time. During the course of the past 50 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 28,347 puts, compared to 20,296 calls. The resultant put/call volume ratio of 1.40 ranks higher than 96% of other such readings taken in the past year, suggesting bearish bets have been accumulated over bullish at a near annual-high clip in recent months.
As such, the stock is carrying a Schaeffer's put/call open interest ratio (SOIR) of 1.54. Not only does this show that put open interest outweighs call open interest among options expiring in three months' or less, but it ranks in the 88th percentile of its annual range, implying short-term speculators are more put-skewed than usual.
On the charts, QCOR has had a solid run of late. In addition to outperforming the broader S&P 500 Index (SPX) by nearly 29 percentage points throughout the past 20 sessions, the stock is up more than 22% year-to-date.
The stock is continuing this upward momentum in today's session, after the biopharmaceutical concern posted fourth-quarter earnings that handily beat analysts' estimates, and announced a 25% increase to its quarterly dividend payment. What's more, Jefferies upped its price target on the security this morning by $8 to $38. At last check, QCOR has tacked on 0.9% to trade at $32.97.