Q2 STOCKS TO BUY

Mallinckrodt PLC (MNK) Punishes Shorts on Post-Earnings Pop

Mallinckrodt PLC (MNK) is enjoying its fourth consecutive post-earnings rally

Aug 2, 2016 at 11:47 AM
facebook X logo linkedin


Drugmaker Mallinckrodt PLC (NYSE:MNK) is booming at midday, up 12% at $75.46, following the company's strong fiscal third-quarter earnings report and upbeat full-year outlook. The stock's rally has MNK's usually quiet options pits buzzing, and elsewhere, short sellers could be sweating the news.

Though short interest fell by 19% during the two most recent reporting periods, these bearish bets still represent 10.6% of MNK's available float. At the stock's average daily pace of trading, it would take almost two weeks to buy back all these shares. That means there is plenty of pent-up buying power ready to send the equity soaring higher, should shorts hit the bricks.

Options traders were showing more optimism than we'd seen recently heading into earnings. Long calls have outstripped puts over the last two weeks, per the stock's 10-day call/put volume ratio of 1.12 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- in the 86th percentile of its 12-month range. Likewise, MNK's Schaeffer's put/call open interest ratio (SOIR) of 0.29 is seated at an annual low, underscoring the call-skew. Of course, some of this may have been driven by short sellers hedging with protective calls. Whatever the case may be, it's also worth noting that volume in MNK's options pits has been quite low, with total open interest close to the bottom quartile of its yearly range, at 38,306 contracts outstanding.

As alluded to, MNK options are crossing at seven times their usual intraday rate today, as traders weigh in on the stock's post-earnings pop. Of course, a positive earnings reaction for the shares shouldn't come as a great surprise, considering the stock has moved higher in the session following earnings for the last three quarters in a row.

On the technical front, MNK has struggled over the past 12 months, giving back 29% of its value, with scathing comments from short seller Citron Research weighing on the shares. But today, Mallinckrodt PLC (NYSE:MNK) is making significant progress, first taking out the round $70 level -- which had limited the stock's upward action since early January -- then bounding above its year-to-date breakeven of $74.63. This puts the shares in positive year-to-date territory for the very first time in 2016.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.

 
 

“Buy This Stock Now!” - Expert Who Called 11x On TSLA

He called a rare 11x on Tesla…

But now, thanks to Elon & Trump’s new alliance…

He says there’s a new opportunity that could be 1,000x BIGGER than Tesla – and it could completely revolutionize a $23 Trillion market.

It’s trading for less than $5 per share right now…

But it won’t be under the radar for long.

Discover The 1,000x Bigger Elon Opportunity Here

GRAND SLAM COUNTDOWN

 
 

Featured Articles from Trusted Partners:

👀Learn How Dividends Create Passive Income for Life
Receive $200 Off Motley Fool Epic. The Motley Fool Epic $299 discounted offer is based on $499/year list price. Introductory promotion for new members only. Take control of your money and your portfolio with Motley Fool Epic.

💵New Income System Could Pay You $4,243 Monthly
You could collect an average of $4,243 per month starting as early as next week with a new payout system for income investors. New registrations are being accepted for investors who want to be in a position to start with their first payout next week.

🚀Easy 92% Crypto Dividends (No Coins Required)
COIN stock doesn't pay a dividend... But there's actually a new way to collect a massive dividend that's indirectly based on the stock and offers a terrific monthly income (currently yielding nearly 92% on a forward basis).

🤝Free Advisor Match with Wiseradvisor.com
Don't leave your retirement to chance! Get matched with a trusted financial expert for FREE and make the most of your tax refund. Get started now.

⚠️Dennis Quaid's #1 Warning for Americans
Here's the thing: life doesn't come with guarantees. The economy shifts, markets stumble, and years of hard work could slip through your fingers like sand. But it doesn't have to be that way for you. So request a free copy of this Gold & Silver Guide that will arrive right to your doorstep when you act now.

 

 
 

Follow us on X, Follow us on Twitter