Option Bears Amped Up as Citron Levels Mallinckrodt PLC (MNK)

A brutal comparison from Citron Research has driven Mallinckrodt PLC (MNK) to fresh lows

Mar 16, 2016 at 10:56 AM
facebook X logo linkedin


Drugmaker Mallinckrodt PLC (NYSE:MNK) plummeted 13.7% yesterday, following Valeant Pharmaceuticals Intl Inc's (NYSE:VRX) sector-led sell-off. It's more of the same this morning, with the shares sliding 7.5% to trade at $55.04 -- extending their stay on the short-sale restricted list -- and bringing option bears out in force. In fact, the stock earlier hit a two-year low of $50.90.

The sell-off was sparked by overnight comments from Citron Research founder Andrew Left, who said MNK's seizure drug Acthar is a "poster child" for price gouging. Left added that Mallinckrodt makes troubled Valeant -- which Citron compared to Enron last year -- look like a "choirboy" by comparison.

In the options pits, puts are changing hands at 13 times the expected intraday rate. The most active strike is the out-of-the-money March 50 put, which is being bought to open, according to Trade-Alert. By purchasing these puts, the traders believe MNK will breach the half-century level (for the first time since December 2013) by this Friday's close, when front-month options expire.

Put buying is nothing new for MNK. During the past 10 days across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has amassed a put/call volume ratio of 4.63 -- with long puts outstripping calls by a nearly 5-to-1 margin. What's more, this reading ranks in the high 87th percentile of its annual range.

Short sellers have grown increasingly skeptical of MNK, too. During the latest reporting period, short interest rose 5.1% to 11.6 million shares -- the highest level since October 2014. At the stock's average daily trading volumes, it would take nearly seven sessions to cover these bets.

About the only pocket of optimism for Mallinckrodt PLC (NYSE:MNK) is among the brokerage crowd. In fact, 92% of covering analysts rate the shares a "buy" or better, with not a single "sell" opinion in sight. However, if MNK continues to spiral lower, a round of downgrades could exacerbate selling pressure and send the stock to lower lows.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.

 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI