Pre-Earnings GlaxoSmithKline plc. (GSK) Traders Have a Change of Heart

GlaxoSmithKline plc (ADR) (NYSE:GSK) is slated to report earnings ahead of the open on Wednesday, May 6

Apr 24, 2015 at 2:39 PM
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GlaxoSmithKline plc (ADR) (NYSE:GSK) is adding to its modest 9.1% year-to-date advance, up 0.7% at $46.63, following news the firm's malaria vaccine -- the world's first licensed human vaccine -- could be granted approval for use in Africa. Option traders are responding in kind, with calls crossing at seven times the expected intraday rate, and outpacing puts by an 11-to-1 margin.

Diving deeper, almost all of the day's call action has centered at the May 46 strike, and it seems safe to assume new positions are being purchased. By initiating these long calls, speculators expect GSK to extend its lead north of $46 through the close on Friday, May 15 -- when front-month options expire -- a time frame which includes the company's May 6 earnings report.

Expanding the sentiment scope reveals it's been put players who have been active in GSK's options pits in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day put/call volume ratio of 0.80 ranks in the 95th percentile of its annual range. Additionally, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.10 rests just 5 percentage points from a 52-week peak, meaning short-term speculators have rarely been as put-skewed toward GSK as they are now.

Regardless whether they're purchasing puts or calls, option traders are willing to pay up for their pre-earnings bets.  GlaxoSmithKline plc's (NYSE:GSK) Schaeffer's Volatility Index (SVI) of 24% arrives higher than 88% of all comparable readings taken over the past year, meaning the equity's front-month options are pricing in relatively lofty volatility expectations at the moment.


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