Eli Lilly Stock Slips on $8 Billion Cancer Bet

Options traders expect bigger gains for LLY in the near term

Jan 7, 2019 at 10:17 AM
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Buyout news has dominated the pharmaceutical sector in early 2019, with Eli Lilly and Co (NYSE:LLY) the latest name to announce a big purchase. Specifically, the Indianapolis firm said it was buying cancer drug specialist Loxo Oncology for $8 billion in cash, or $235 per LOXO share. While LOXO stock has jumped 66.4% to trade at $232.72, LLY shares are trading 1.15% lower at $113.33.

Eli Lilly's longer-term trend has been higher, though, with the stock up 32.4% year-over-year. After hitting a record high of $119.84 on Dec. 4, LLY pulled back to support at its rising 120-day moving average, and a sharp bounce from here now has the equity back above its 80-day trendline, which served as a floor in November.

Options traders have been targeting more gains for LLY stock. The January 2019 110-strike call is home to peak open interest of 15,217 contracts. Data from the major exchanges confirms at least some buy-to-open activity at the front-month strike, meaning speculators expect the security to close above $110 by expiration at the close next Friday, Jan. 18.

Analysts, on the other hand, have been sitting on the sidelines. While seven of 17 brokerages still maintain a "buy" or better on Eli Lilly stock, the average 12-month price target of $118.19 is a slim 4.5% premium to current trading levels. Should the equity resume its uptrend, a round of upgrades and/or price-target hikes could create fresh tailwinds.

 

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