Gilead Sciences, Inc. (GILD) Option Bulls Turn Out Ahead of Presidential Debate

Gilead Sciences, Inc. (NASDAQ:GILD) is lower ahead of Sunday's second U.S. presidential debate between Hillary Clinton and Donald Trump

Oct 7, 2016 at 3:20 PM
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Gilead Sciences, Inc. (NASDAQ:GILD) is trading down ahead of this Sunday's second U.S. presidential debate between Democratic candidate Hillary Clinton and Republican nominee Donald Trump. Prescription drug prices have been a hot topic in the presidential race, with Clinton calling a number of drugmakers for price-gouging -- most recently EpiPen parent Mylan NV (NASDAQ:MYL). Options traders aren't being swayed by GILD stock's slide -- with GILD last seen down 1.3% at $75.21, and fresh off a two-year low of $74.92 -- betting on a quick rebound for the shares.

By the numbers, around 32,000 call options and 27,000 put options have changed hands on GILD today -- 1.5 times what's typically seen at this point in the day. Most active is GILD's October 77 call, where it seems safe to assume new positions are being purchased. In other words, call buyers expect the security to bounce back above $77 by the time the options expire at the close on Friday, Oct. 21.

More broadly speaking, options traders have shown a preference for long calls over puts in GILD's options pits of late. Over the past 10 sessions, speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 34,701 calls on GILD, versus 16,846 puts.

What's more, GILD currently sports a Schaeffer's put/call open interest ratio (SOIR) of 0.47. Not only does this show that calls more than double puts among options set to expire in three months or less, but it ranks lower than 90% of all comparable readings taken in the past year. Simply stated, short-term speculators have rarely been as call-heavy toward GILD as they are now.

Technically, though, GILD has been in freefall since being swiftly rejected near the $101 mark in late April -- home to the stock's year-to-date breakeven mark. Specifically, the shares are down roughly 27%, and are currently on track to notch their lowest weekly close since April 2014.

Amid this decline, short sellers have been cashing in their winning chips, with short interest down 10.4% in the most recent reporting period. Now, short interest accounts for just 1.1% of GILD's available float, and it would take fewer than two sessions to cover these bearish bets, at the stock's average pace of trading. This leaves little in the way of sideline cash available to help fuel any future rallies.

Meanwhile, analysts have started to take an axe to their upbeat ratings on GILD -- and additional downgrades and/or price-target cuts could create more headwinds for the shares. Currently, 11 of 20 brokerage firms maintain a "buy" or better rating, with not a single "sell" to be found. Plus, the average 12-month price target for Gilead Sciences, Inc. (NASDAQ:GILD) is docked at $102.89, representing a 37% premium to the stock's current perch.

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