Short-term options are attractive on the drugmaker
The shares of Teva Pharmaceutical Industries Ltd (NYSE:TEVA) are up 4.9% to trade at $21.28 -- eyeing their highest close in more than three months -- after the latest regulatory filings revealed that Warren Buffett's Berkshire Hathaway (BRKA) more than doubled its stake in the drug stock last quarter. TEVA shares have already added about 10% this week, and are on pace for their best week since mid-February -- the last time the security enjoyed a big Buffett boost. The stock gapped higher on Monday, after rival Perrigo (PRGO) said it didn't expect Food & Drug Administration (FDA) approval for its generic version of Teva's ProAir inhaler in 2018.
A short squeeze could propel the shares even higher, too. Short interest on Teva Pharmaceutical stock represents six sessions' worth of pent-up buying demand, at the security's average pace of trading.
And if analysts follow Buffett's lead, a round of upgrades could also help TEVA extend its upside breakout. Currently, just three brokerage firms consider the biotech worthy of a "buy" or better rating, compared to 21 doling out tepid "hold" or worse opinions. Plus, the average 12-month price target of $18.82 represents a discount of more than 11% to Teva stock's current perch, leaving the door wide open for price-target hikes to lure more buyers to the table.
Meanwhile, options traders hoping to speculate on TEVA's short-term trajectory can do so at a relative discount. The stock's Schaeffer's Volatility Index (SVI) of 36% is in just the 18th percentile of its annual range, indicating near-term options are pricing in low volatility expectations. In other words, TEVA's short-term options are attractively priced. What's more, the stock's Schaeffer's Volatility Scorecard (SVS) sits at 99 (out of 100), indicating the shares have handily exceeded options traders' volatility expectations in the past year.