GW Pharmaceuticals PLC (GWPH) Buyout Hopes Trigger Bullish Options Betting

GW Pharmaceuticals PLC - ADR (GWPH) call options are in high demand today

by Alex Eppstein

Published on Sep 8, 2016 at 12:28 PM
Updated on Jun 24, 2020 at 10:16 AM

GW Pharmaceuticals PLC - ADR (NASDAQ:GWPH) options are heating up, as traders weigh in on mounting takeover talk. Yesterday, the stock posted its biggest percentage gain (19.5%) in six months, following reports that the firm has hired Morgan Stanley (NYSE:MS) amid acquisition interest from several drugmakers. While analysts are split on a potential sale, options traders appear to be hopeful.

Right now, GWPH calls are changing hands at 12 times the usual intraday rate. One strike seeing clear buy-to-open activity is the out-of-the-money October 125 call. By purchasing these positions, options traders are banking on the drug stock toppling $125 -- and hitting a new annual high -- by back-month expiration, at the close on Friday, Oct. 21.

More broadly speaking, however, it's been option bears that have been in the driver's seat. GWPH's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 2.17, with long puts doubling calls. What's more, this reading ranks near the top quartile of its annual range.

The pharmaceutical stock is up 3.4% today at $107.60, and the fact is, it's been an absolute beast since bottoming in March. As a refresher, GWPH hit a two-year low of $35.83 in early March, meaning it's nearly tripled in value in roughly six months. From a contrarian perspective, a capitulation among "vanilla" option bears -- rather than those who purchased puts as protection for their long stock positions -- could add fuel to the fire.

Turning back to the buyout buzz, reactions elsewhere on the Street have been mixed, as mentioned before. On the one hand, Alan Brochstein, founder of 420 Investor, said takeover talk "seems a bit premature." On the other, Cantor Fitzgerald has already set its potential purchase price for GW Pharmaceuticals PLC - ADR (NASDAQ:GWPH) at $165 per share -- a more than 53% premium to current levels, and in uncharted waters.

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