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Bears Gravitate Toward Vertex Pharmaceuticals Incorporated (VRTX)

April-dated puts are popular with VRTX traders

by 2/22/2013 1:50 PM
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Pessimistic speculators have been flocking toward Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX - 45.48) today, as nearly 7,200 puts have crossed the tape so far -- close to six times the stock's typical intraday put volume. By contrast, fewer than 1,400 calls have been exchanged. The clear front-runner has been the April 43 put, where north of 6,900 contracts have traded at a volume-weighted average price (VWAP) of $4.

Almost three-quarters of these out-of-the-money puts changed hands at the ask price, pointing to buyer-driven activity. Since today's volume surpasses present open interest levels, it's very likely that fresh bearish bets have been added here. In order for traders to realize a profit on their bought-to-open puts, VRTX must fall south of $39 (strike price less the VWAP) by April expiration. This reflects a 14.2% retreat from current levels.

This surge in put volume marks a change of pace for the drug company. Traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open nearly three calls for every put during the past 10 weeks. What's more, the resultant 50-day call/put volume ratio of 2.91 is just 8 percentage points shy of an annual acme, indicating options players have rarely picked up bullish options over bearish at a faster pace during the last 12 months.

From a technical perspective, VRTX has gained roughly 9% year-to-date, and about 21% on a year-over-year basis. However, the stock's Schaeffer's Volatility Scorecard (SVS) is docked at 85, implying short-term options are relatively cheap right now, in relation to the probability of an outsized move on the charts. In other words, today's bears only risk the inexpensive premium paid for their put purchases, should the shares fail to fall below the aforementioned breakeven rail by the close on April 19.


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