Pharma Stock Bounces on Spin-Off Plans

GSK has chart support in place

Assistant Editor
Jun 23, 2021 at 10:35 AM
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The shares of London-based GlaxoSmithKline PLC (NYSE:GSK) are up 3.5% to trade at $40.45 at last check, after the global healthcare company announced plans to spin off its consumer health business. Also of note, the new core and drug vaccine division has set targets of 5% sales growth and 10% profit growth by 2026.

A week ago today, the pharma stock traded as high as $41.44, its highest levels since a 12-month high of $42.40 on Aug. 12. Despite shedding 1.6% since then, GSK has chart support in place at its 40-day moving average, a trendline that hasn't been breached since mid March. Year-to-date, the shares are up 8%. 

In the options pits, sentiment has been more bearish than usual. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), GSK's put/call volume ratio stands higher than 88% of readings from the past year, showing long puts being picked up at a faster-than-usual rate.

These options are well-priced at the moment, too, from a volatility perspective. The stock's Schaeffer's Volatility Index (SVI) of 19% stands higher than 15% of all other readings in its annual range, implying that options players are pricing in relatively low volatility expectations at the moment.  It's also worth pointing out that GSK ranks low on the Schaeffer's Volatility Scorecard (SVS), with a score of just 18 out of 100. In other words, the security has consistently realized lower volatility than its options have priced in, making the stock a potential premium-selling candidate.

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