Stocks quoted in this article:
Watson Pharmaceuticals (WPI – 48-5/8) had been cruising along nicely, rallying 110 percent from its mid-May low to an all-time high in Friday's trading. All that came to an abrupt end this week, as the shares declined 6.5 percent yesterday in anticipation of the company's meeting with analysts after the close on Tuesday. At that meeting, company officials revealed that third-quarter earnings will range between three and five cents per share, which falls well below Street forecasts of 48 cents per share. The security has plunged 24 percent so far this morning in reaction to this news.
Yesterday, several put players bet on this negative news, as put open interest increased at several strikes. The September 60, 65, and 75 puts saw open interest increase by 1,200, 1,050, and 750 contracts, respectively. In addition, 500 contracts were added to the October 55 put. This drove WPI's Schaeffer's put/call open interest ratio (SOIR) to an annual high of 1.89.