Sanofi SA (ADR) (SNY) Put Players Cheer Legal Loss

Sanofi SA (ADR) (SNY) is falling after a judge ordered it to halt sales of its cholesterol drug, citing patent infringement

Jan 6, 2017 at 12:44 PM
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Sanofi SA (ADR) (NYSE:SNY) is taking it on the chin today, after a U.S. judge ordered Sanofi SA (ADR) and sector peer Regeneron Pharmaceuticals Inc (NASDAQ:REGN) to stop selling the cholesterol drug Praluent. The ruling is the result of a lawsuit which alleges Praluent infringes on patent rights held by biotech Amgen, Inc. (NASDAQ:AMGN). In the option pits, it looks like speculators have been betting on today's legal loss.

As AMGN rises, SNY is falling in step with REGN. So far today, the biotech is down 2.6% at $40.42. The drugmaker has been in a channel of lower highs and lows since late 2015, most recently bottoming out at $36.81 in late October, and topping out at $41.67 yesterday.

170106SNY

As alluded to earlier, option bears have been hamming the drugmaker in recent weeks. SNY's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at an annual peak of 72.13, though absolute volume is light, with just 16 calls exchanged over the last 10 days of trading, compared to 1,154 puts.

In addition, SNY's Schaeffer's put/call open interest ratio (SOIR) of 1.12 shows a bigger-than-usual put-skew among near-term traders, sitting in the 80th percentile of its annual range. Drilling down, the leading open interest position is the front-month January 39-strike put, which could potentially serve as a layer of short-term support. The now at-the-money January 40 put has seen the most attention in the past two weeks, with more than 1,200 contracts added -- mostly bought to open.

Now is a prime time to purchase premium on SNY's near-term options. Option players are pricing in relatively low volatility expectations, with SNY's Schaeffer's Volatility Index (SVI) of 21% in just the 13th percentile of its annual range. In other words, the biotech's near-term options are very attractively priced, from a volatility standpoint.

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