Options Bears Blitz St. Jude Medical, Inc. (STJ), Abbott Laboratories (ABT)

Options bears are blitzing St. Jude Medical, Inc. (NYSE:STJ) and suitor Abbott Laboratories (NYSE:ABT) after dangerous accusations by short-selling firm Muddy Waters

by Andrea Kramer

Published on Aug 25, 2016 at 2:57 PM
Updated on Aug 25, 2016 at 3:02 PM

Medical device maker St. Jude Medical, Inc. (NYSE:STJ) is swimming in red ink this afternoon, after notorious short-selling firm Muddy Waters disclosed a bearish position, letting dangerous accusations fly. As such, options bears are blitzing STJ today, as well as Abbott Laboratories (NYSE:ABT), which in late April agreed to buy St. Jude.

 

Carson Block, the head of Muddy Waters, told Bloomberg that cybersecurity research indicated STJ's heart devices were vulnerable to hacking, and that they're "so poorly protected ... it is likely [there's been] gross negligence by St. Jude over a period of years." While St. Jude Medical, Inc. Chief Technology Officer Philip Ebeling said the accusations are "absolutely untrue," the shares of STJ have dropped 5.1% to $77.73, and fell as low as $73.40 -- territory not charted since before the aforementioned buyout agreement, which valued STJ at about $85 a share. ABT, meanwhile, has shed 1.5% to sit at $42.56.

STJ stock volume is on pace to topple its annual high from April 28 -- M&A day. In the options pits, STJ options are flying off the shelves at 66 times the average intraday clip, with puts outnumbering calls more than 4-to-1. Further, put volume is already nearly twice its previous annual high from July 18.

It looks like speculators are buying to open puts at the October 80, 75, and even 65 strikes, possibly to bet on a back-out from ABT. And as noted by Trade-Alert, it appears some fortuitous trader bought to open 2,000 December 80 puts just before the Muddy Waters news broke, for $3.30 apiece, or $660,000 (premium x 100 shares per contract x 2,000 contracts). These now in-the-money contracts could now be sold for a cool $1.12 million, based on the current bid price of $5.60. That's a profit of $460,000 (minus brokerage fees) on St. Jude Medical, Inc. (NYSE:STJ) puts in a matter of hours.

ABT's stock volume could also surpass that April 28 surge and touch an annual high. The stock's options are trading at six times the typical intraday pace, with puts more than doubling calls so far. As with STJ, ABT's put volume has already surpassed its previous 52-week peak, touched on July 11.

Again, it appears some traders bought to open weekly 8/26 42.50-strike puts as soon as the Muddy Waters news hit, around 10:53 a.m. ET, for an ask price of $0.20 apiece, which hasn't changed much. To profit on the long puts, the buyers need Abbott Laboratories (NYSE:ABT) shares to breach $42.30 (strike minus premium paid) by tomorrow's close, when the options expire.



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