Options Traders Bear Down On Battered Bristol-Myers Squibb Co (BMY)

Bristol-Myers Squibb Co (BMY) options are trading at five times the expected intraday rate

by Alex Eppstein

Published on Oct 10, 2016 at 11:48 AM

Bristol-Myers Squibb Co (NYSE:BMY) is taking it on the chin, down nearly 10% at $49.99, after the company's lung cancer drug was shown up by a rival treatment in clinical trials. Making matters worse, SunTrust Robinson slashed its price target to $62 from $68. With BMY fresh off a nearly two-year low and on the short-sale restricted list, its intraday options volume is extremely heavy.

Jumping right in, BMY options are running at five times the usual intraday rate, with roughly 80,000 contracts on the tape. What's more, intraday call volume currently sits in the 100th percentile of its annual range, mostly due to the action transpiring at the November 52.50 strike. All signs -- including data from the International Securities Exchange (ISE) -- point to buy-to-open activity. In other words, the buyers foresee BMY bouncing back above $52.50 by back-month expiration, at the close on Friday, Nov. 18.

This isn't the first time options traders have targeted calls over puts. In fact, according to the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 2.53 BMY calls for each put over the past 10 weeks.

Whether traders are purchasing calls or puts, the fact is, short-term options are pricing in extremely high volatility expectations at the moment. Specifically, BMY's Schaeffer's Volatility Index (SVI) rests at an annual high of 39%.

Obviously, option bulls may not like what they're seeing today, with Bristol-Myers Squibb Co (NYSE:BMY) getting absolutely demolished. However, these traders -- not to mention shareholders -- can perhaps take solace in the stock's 14-day Relative Strength Index (RSI). With BMY plunging, its RSI has dropped below 25, putting it solidly in oversold territory.

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