Citi Becomes Latest Brokerage to Cut Outlook For CVS Stock

There's a heavy accumulation of call open interest at overhead strikes

Mar 6, 2019 at 9:39 AM
facebook twitter linkedin

CVS Health Corp (NYSE:CVS) has been getting wrecked this year. The stock began its descent back in December, shortly after touching a 52-week high of $82.15, and then it suffered a massive post-earnings bear gap last month, and has continued to slide. In fact, CVS shares closed at their lowest point in over five years yesterday, settling at $54.96. At last check this morning, CVS is down 1% at $54.44.

During this sell-off, a number of analysts have cut their outlooks for the pharmacy operator, including Citigroup this morning. The brokerage firm dropped its price target down to $68 from $94 -- though this obviously still represents a sizable premium to the stock's current price.

The real issue, however, is that this may not be the last bear note we see, since 12 of the 17 analysts in coverage still recommend buying the equity. As contrarians, we'd view this as a huge red flag for the underperforming security, since additional downgrades and/or price-target cuts could act as a headwind for CVS.

Bullish sentiment has also been spotted in the options arena. Most notably, near-term options traders are extremely call-heavy, based on the Schaeffer's put/call open interest ratio (SOIR) of 0.45 -- landing in the bottom percentile of its annual range. This is due to heavy open interest at the April 65, 70, and 75 calls, as well, as the May 60 and 70 calls. In the front-month March series, the 70 strike holds peak open interest.

Going off this, call open interest, and total open interest, is at an annual high. This accumulation of open interest at overhead call strikes is another reason the stock's upside potential looks grim.


Stop leaving money on the table with the same old broken options trading approach...

There is no options strategy that more perfectly capitalizes during earnings season better than this simple call and put buying strategy. Perfect for aggressive traders looking to recover their suffering portfolios so far in 2022. With the simplest possible options strategy, Schaeffer's team with 100+ years of options trading excellence, target 200% gains on every single trade. So many trades are being beaten down by the market, but don't be one of them! Don't waste another second... join us right now before the next trade is released! 

Schaeffer's Daily Bulletin Offer


Special Offers from Schaeffer's Trading Partners