Earnings Preview: GW Pharmaceuticals PLC (GWPH)

GW Pharmaceuticals PLC - ADR (GWPH) will report earnings on Monday morning

Kirra Fedyszyn
Dec 2, 2016 at 3:22 PM
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Drugmaker GW Pharmaceuticals PLC - ADR (NASDAQ:GWPH) is preparing to report earnings on Monday morning. The stock has put in a strong performance year-to-date, tacking on more than 61%. In fact, the shares notched a record high near $138 in October, and have since staged several successful tests of the $108-$110 region -- home to their late-September pre-bull gap intraday high -- up 2.5% today at $111.96. GWPH's options pits are buzzing this afternoon, and it looks like some traders are betting on -- or hedging against -- a significant slide post-earnings.

Specifically, GWPH puts are changing hands at triple the typical intraday rate, with 2,427 puts traded compared to 1,479 calls. Leading the action by a wide margin is the stock's December 95 put, where it appears likely traders are purchasing new positions. If so, the put buyers expect GWPH to slide below the $95 mark -- not seen since early September -- by front-month expiration at the close on Friday, Dec. 16. However, given the security's impressive technical backdrop, some of this out-of-the-money put buying could be a result of shareholders protecting paper profits against a post-earnings slide.

Taking a step back, in fact, shows today's preference for puts represents a change of pace among GWPH options traders. Across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity has seen nearly four calls bought to open for each put over the past 10 weeks. What's more, the resulting call/put volume ratio of 3.78 rests just 1 percentage point from an annual high.

That doesn't necessarily mean all options traders are bulls, however. Short interest on GWPH rose 13.7% during the most recent two-week reporting period to 2.9 million shares, and these bearish bets are now seated at a record high. In fact, it would take almost a week to cover the 15.2% of the stock's total float that's currently sold short, at GWPH's average daily volume. This suggests some recent call buyers may have been short sellers looking to hedge their pessimistic positions against a surprise upside move.

Looking at GWPH's post-earnings price history shows the stock has been positive in five of the past eight quarters in the session subsequent to reporting. On average, the stock has swung 3.1%, regardless of direction. This time around, the options market is currently pricing in a single-day shift of 14.8% either way.

It's worth noting that earnings aren't necessarily the biggest force behind GWPH's major moves on the charts. Due to the company's ties to the medical marijuana field, GW Pharmaceuticals PLC - ADR (NASDAQ:GWPH) has historically made some hefty swings in response to any industry news, as well as positive data for its own treatments. For instance, GWPH stock more than doubled in value in a single session on upbeat results for its cannabis-based epilepsy drug back in March. Plus, the shares were up 11.5% one week after the November election results, when several states voted in favor of legalizing medical and/or recreational marijuana use.

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