Lannett Company, Inc. (LCI) Options Volume Explodes On Post-Earnings Gap

Lannett Company, Inc. (NYSE:LCI) stock and options volume are in the 100th annual percentile today

Aug 24, 2016 at 12:59 PM
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Shares of Lannett Company, Inc. (NYSE:LCI) are on fire, after the pharmaceutical firm reported better-than-expected fiscal fourth-quarter earnings, offered up an optimistic fiscal 2017 sales forecast, and received a bevy of bullish brokerage notes. At last check, LCI stock was up 15.1% at $37.21, and -- unlike this spiraling retail stock -- is at the top of the New York Stock Exchange (NYSE). Against this backdrop, LCI stock volume is in the 100th percentile of its annual range, while options volume -- with puts edging out calls -- is at a 52-week peak.

Diving deeper, LCI's September 30 put is most active, and according to the International Securities Exchange (ISE), it looks like some of this activity is of the sell-to-close kind. Meanwhile, the stock's September 40 strike is most popular on the call side, and it appears as if new positions are being purchased here. If this is the case, the goal is for LCI to extend today's rally, and break out above the round $40 mark by the close on Friday, Sept. 16 -- when front-month options expire.

More broadly speaking, options traders are extremely put-heavy toward options set to expire in three months or less. In fact, LCI's top-heavy Schaeffer's put/call open interest ratio (SOIR) of 1.96 ranks just 1 percentage point from a 52-week peak. Simply stated, short-term speculators have rarely been as put-skewed toward LCI as they are now.

Outside of the options pits, short sellers have been jumping ship amid the stock's recent rally off multi-year lows, with short interest down 20.7% in the latest two-week reporting period. However, short interest still accounts for a lofty 23.3% of LCI's available float -- or two weeks' worth of pent-up buying demand, at the equity's average pace of trading. As such, it's possible some of today's gains are a result of continued short-covering.

Elsewhere, analysts have been upbeat toward LCI, with the majority maintaining a "buy" or better rating ahead of earnings. What's more, the stock received no fewer than four price-target hikes post-earnings. Included in the bunch was a price target to $41 from $23 at Susquehanna, which cited indications Lannett's "base business [is] stabilizing."

On the charts, today's price action is just more of the same for a stock that's more than doubled since hitting a two-year low of $16.91 in late March. However, today's bull gap was quickly halted at the round $40 level -- an area that has served as both support and resistance over the past 12 months.

LCI daily chart August 24

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