Many short sellers and options traders are profiting from today's crash
Specialized pharmacy stock Diplomat Pharmacy Inc (NYSE:DPLO) is trading at record lows today, earlier bottoming at $7.33, after the company announced it's delaying the release of its fourth-quarter and full-year 2018 earnings report, and is pulling its 2019 forecasts due to greater-than-expected weakness in its pharmacy benefits management (PBM) business. This comes as leaders in Washington D.C. are partially blaming the services provided by PBMs for the rising costs of healthcare.
DPLO stock was last seen trading down more than 40% on the day at $7.52, meaning it's now lost more than two-thirds of its value over the past 12 months. It seems many traders were ahead of the curve by betting on the decline in the shares of the struggling company, since short interest represents 15% of the float.
This puts the equity's short interest ratio at an extremely elevated 17.8, meaning it would take short sellers more than three weeks to cover their positions, based on average daily trading volumes. Of course, the stock's losses today have put it on the short-sale restricted list (SSR), so prospective bears would need to turn to put options.
Speaking of which, options activity is unusually heavy today, with almost 900 puts crossing so far, compared to an average daily volume of just 30. New positions are opening at the March 7.50 put, and on the call side the April 10 strike is seeing notable attention. Looking back, data shows that one group of traders who bought to open March 12.50 puts earlier this week are likely cheering today's sell-off.
Meanwhile, brokerage firm Baird came in this morning and cut its price target to $9 from $15, and we could see additional bear notes going forward. That's because four analysts still have "strong buy" recommendations on Diplomat Pharmacy, while the consensus 12-month price target is $16.67 -- more than double current levels. Given the current state of the company and the political backlash around it, it's not hard to imagine more firms backing of their bullish DPLO stances.