Short-term ABBV options are a bargain right now
The shares of AbbVie Inc (NYSE:ABBV) have had an uninspiring summer, trading in a choppy sideways range below the $100 level since May. While a recent Food and Drug Administration (FDA) approval was unable to move the needle much, now might be a good time to bet on a short-term bounce for the drug stock.
More specifically, AbbVie stock is now within one standard deviation of its 320-day moving average, after a lengthy stretch above it. Over the past three years, there have been three other instances of ABBV pulling back to its 320-day trendline after trading north of it at least 60% of the time over the previous two months. Those three instances resulted in an average one-month return of 4.41%, per Schaeffer's Senior Quantitative Analyst White, with two out of the three returns positive.
Based on its current perch at $93.35 (down 0.5% for the day), another move of this magnitude would put the equity around $97.47 by this time next month -- back above its year-to-date breakeven level.
Amid this latest pullback, a strongly bearish sentiment backdrop could help fuel a stronger-than-usual ABBV bounce. For one, a renewed rally could prompt analysts to rethink their bearish stance, as 10 of the 16 brokerages covering ABBV rate it a "hold" or "strong sell." Any upgrades from this group could draw more buyers to the table.
In addition, shorts have been hitting the exits, with short interest down 25% from its June highs. But at AbbVie's average daily trading volume, it would still take shorts nearly six sessions to cover the remaining bearish bets.
In the options pits, ABBV puts have become more popular lately, as evidenced by data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which shows the security with a 10-day put/call volume ratio in the elevated 93rd annual percentile. This means that AbbVie puts have been purchased at a faster-than-usual clip relative to calls during the past two weeks. An unwinding of pessimism in the options pits could add fuel to the stock's fire.
Those wanting to bet on a bullish repeat of history for ABBV may want to consider a call-buying strategy, considering short-term options on the drug stock are pricing in remarkably low volatility expectations. Its Schaeffer's Volatility Index (SVI) is 23%, which arrives in the 25th percentile of its annual range.
Furthermore, AbbVie stock has consistently rewarded premium buyers over the past year. This is per the stock's Schaeffer's Volatility Scorecard (SVS), which is currently docked at an elevated 96 out of a possible 100. This suggests that ABBV has regularly made larger-than-expected moves on the charts, compared to what its options were pricing in.