TEVA options can be had at a discount, from a volatility perspective
Teva Pharmaceutical Industries Ltd (NYSE:TEVA) is extending its recent hot streak today, up 4.6% to trade at $24.13 -- pacing for a third straight win. Driving the shares higher is a Food and Drug Administration (FDA) approval for the company's migraine drug -- which was met with an upgrade to "neutral" from "sell" at BTIG, and price-target hikes at Credit Suisse (to $26) and Mizuho (to $29). However, a pullback could be imminent, if the stock's meet-up with a historically bearish trendline is any indication.
More specifically, Teva stock is now within one standard deviation of its 40-day moving average. Over the past three years, there have been 11 other instances of TEVA meeting up with its 40-day trendline after trading south of it at least 60% of the time over the previous two months. Those previous pullbacks have resulted in an average one-month negative return of 3.49%, per Schaeffer's Senior Quantitative Analyst Rocky White, with only 36% of the returns positive.
An added layer of trouble could be found at the stock's current level, which coincides with a 23.6% Fibonacci retracement of TEVA's rally off its April lows to its August annual high at $25.96. Plus, this $24 region contained the security's late-July rally attempt.
In the options pits, TEVA calls 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 call/put volume ratio of 2.49, a ratio that ranks in the 82nd annual percentile. This means Teva calls have been purchased at a near-peak pace relative to puts during the past two weeks.
Regardless of whether it's calls or puts, though, it's an attractive time to buy premium on TEVA options. The stock has a Schaeffer's Volatility Index (SVI) of 43%, which ranks in just the 20th annual percentile. This reveals the stock's short-term options are pricing in unusually low volatility expectations at the moment.