FDA Revision Puts Eli Lilly Stock in Spotlight

A shift in the options pits may create additional tailwinds for LLY

Digital Content Manager
Sep 17, 2021 at 10:31 AM
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Drug maker Eli Lilly And Co (NYSE:LLY) is making headlines this morning, after the U.S. Food and Drug Administration (FDA) revised an emergency use authorization for the antibody cocktail the company has developed with AbCellera (ABCL) to treat Covid-19 cases. The amendment allows the combination therapy to be used on patients who are at high risk for progression to severe disease, or as a post-exposure prevention method for those who are not yet fully vaccinated.

The U.S. government has already jumped on the treatment, with Eli Lilly expected to supply 388,000 doses of its antibody drug, of which 200,000 will be delivered by the third quarter. Though the new deal could generate $330 million in revenue, LLY was last seen down 1% at $228.79.

The security has been trending lower on the charts since its Aug. 17, all-time high of $275.87. Shares have also slipped below support at the 40-day moving average, which was instrumental in the stock's climb, though the $230 area could capture this recent pullback. Longer term, Eli Lilly stock still sports a healthy 51.2% year-over-year lead.

Analysts are bullish towards LLY. Of the 11 in question, nine carry a "strong buy" rating, while two say "hold." Plus, the stock's 12-month consensus target price of $265.88 is a 15.5% premium to current levels.

The options pits are not as optimistic. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), LLY's 50-day put/call volume ratio is higher than 91% of readings from the last 12 months. This means long puts have been getting picked up at a much quicker-than-usual clip.

Echoing this, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.40 stands in the 95th annual percentile, suggesting short-term options traders have rarely been more put-biased. 

It is worth noting LLY ranks high on the Schaeffer's Volatility Scorecard (SVS), with a score of 91 out of 100. This suggests the stock has consistently realized higher volatility than the options pits have priced in, making it a solid premium-buying candidate.

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