Walgreens, Rite Aid Stocks Hit Fresh Lows on Amazon Fears

Shares of drug store companies are getting crushed

Josh Selway
Oct 27, 2017 at 2:16 PM
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Today, it's all about tech stocks on Wall Street, with a sector-wide rally headlined by Amazon's post-earnings run to record highs. But the e-commerce firm's gain is another sector's pain: pharmacy stocks. This group is crashing today amid fresh buzz Amazon is entering the pharmaceutical industry. For instance, both Walgreens Boots Alliance Inc (NASDAQ:WBA) and Rite Aid Corporation (NYSE:RAD) hit fresh lows today, but options traders might be betting on a quick comeback.

At last check, WBA was off 3.9% at $64.48, and earlier hit a nearly three-year low of $63.82. Since last month's peak of $83.89, hit on Sept. 12, the shares have shed over 23%. Still, call volume is running at 20 times the expected rate today.

At last check, more than 126,000 calls had traded, compared to roughly 6,700 puts. This call-skew is due to a number of huge spreads that crossed this afternoon. For instance, one trader possibly initiated a bullish call spread involving 25,000 June 2018 82.50 calls and 15,000 77.50 calls from the same series. The April 75 and 80 calls, and the January 2019 87.50- and 85-strike calls have all seen heavy activity, as well.

Call buying was popular coming into today, too. Walgreens has a 10-day call/put volume ratio of 2.20 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the 75th annual percentile. This signals a healthier-than-normal appetite for long calls.

Turning to Rite Aid, the stock is off 6% today at $1.56, and earlier hit a four-year low of $1.54. This brings the equity's 12-month loss to almost 77%, and short sellers have been moving in as a result. During the past two reporting periods alone, short interest jumped 48.1%.

In the options pits, call volume is at two times the expected level today, with a huge bulk of the action taking place at the December 2 strike. By the numbers, more than 20,000 contracts have been traded here, compared to fewer than 2,200 at the next closest strike. Data points to buy-to-open activity here, so traders are betting on RAD stock rising back above $2 in the coming months.

Like its sector peer, call buying is nothing new for Rite Air speculators. In fact, the security's 10-day call/put volume ratio stands at a very elevated 8.38, which is higher than 73% of all readings from the past year. Of course, it's always possible some of this call buying is from short sellers using options to hedge against an unexpected upside move.

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