Are Higher Highs Ahead for Teva Pharmaceutical Industries?

Teva Pharmaceutical Industries Ltd (ADR) (TEVA) calls are popular as the stock hits new highs

Apr 9, 2015 at 1:20 PM
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Drugmaker Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is once again assailing record heights, peaking at $68.75 earlier today. The stock was last seen 0.8% higher at $67.03, and options traders -- and analysts -- are anticipating even higher highs in the near term.

Roughly 38,000 TEVA calls have already traded today -- four times the average intraday volume, and more than six times the number of puts exchanged. The May series is most popular, with buy-to-open action spotted at the 67.50- and 70-strike calls.

The May 67.50 calls traded at a volume-weighted average price (VWAP) of $3.42, meaning buyers will profit if TEVA topples $70.92 (strike plus VWAP) -- in uncharted territory -- by the close on Friday, May 15, when back-month options expire. Meanwhile, the VWAP of the May 70 calls is $1.84, making breakeven for the buyers $71.84.

With earnings at the end of the month, TEVA's short-term option premiums are relatively inflated at the moment. The equity's 30-day at-the-money implied volatility has jumped 18% to 37.8% -- an annual high -- compared to the stock's 30-day historical volatility of 24.1%. Meanwhile, the equity's Schaeffer's Volatility Scorecard (SVS) sits at a low 7, indicating that TEVA has tended to make undersized moves over the past year, relative to what the options market has priced in.

As alluded to earlier, analysts are fond of Teva Pharmaceutical Industries Ltd (NYSE:TEVA). Just this morning, Barclays upped its price target by $5 to $80 -- representing a record high -- and Cowen and Company bolstered its target by $30 to $100. Both firms underscored the equivalent of an "outperform" rating. Additional price-target hikes could come down the pike, too, as the consensus of $66.17 stands at a discount to TEVA's current perch.

Daily Chart of TEVA since December 2014

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