Put buying has been extremely popular on the pharma stock
Last night, Cantor Fitzgerald initiated coverage on Eli Lilly and Co (NYSE:LLY) with an "overweight" rating and price target of $100. The analyst waxed optimistic on the pharmaceutical maker, noting that its pipeline assets and growth prospects for key drugs are "underappreciated." Cantor also believes Eli Lilly's pipeline of three non-opioid drugs have "blockbuster" potential.
Despite the bullish brokerage note, LLY stock is only up 0.2% to trade at $86.06 today, and is trading just above its year-to-date breakeven point. Since falling to an annual low of $73.69 in early February, the security has clawed back to add 17%. The shares have been carving out a path of higher highs since March, with recent support stemming from their ascending 10-day moving average.
Despite LLY's uptrend recently, short sellers have been piling on. Short interest increased by 21% in the two most recent reporting periods, to 11.73 million shares, the most since mid-March. A capitulation from some of the weaker bearish hands could keep the wind at LLY stock's back.
The attitude is tremendously bearish in the options pits, too. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 7,042 puts in the last 10 sessions, compared to 1,124 calls. The resultant put/call volume ratio ranks in the 100th percentile of its annual range. Should LLY keep climbing, it could lead to an unwinding of these bearish bets.
Meanwhile, short-term options traders have been scooping up LLY contracts at a discount. The equity's Schaeffer's Volatility Index (SVI) of 16% is in just the 16th percentile of its annual range, suggesting Eli Lilly's near-term options are pricing in relatively low volatility expectations.