Put Players Take Aim at Slipping St. Jude Medical, Inc. (STJ)

St. Jude Medical, Inc. (STJ) is sliding amid reports of a defect in some implanted heart devices

Kirra Fedyszyn
Oct 11, 2016 at 10:33 AM
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Medical device maker St. Jude Medical, Inc. (NYSE:STJ) is off to a rough start today, following reports some of the company's implanted heart devices may suffer from premature battery depletion without warning patients properly -- a problem that has already been linked to two deaths. The news has STJ down 3.3% at $78.60 so far this morning, after short seller Muddy Waters reported the issue in a tweet last night. The U.S. Food and Drug Administration (FDA) advised patients to use an at-home device to keep an eye of their devices' battery levels, and reported it is still investigating claims that some STJ devices could pose serious cybersecurity risks. Meanwhile, the stock's put options are flying off the shelves.

So far, nearly 3,000 STJ puts have changed hands -- roughly 13 times the usual intraday volume. In fact, nine of the 10 most active options are puts, with the December 70 strike leading the action so far. If new positions are being purchased here, the put buyers are betting on STJ sliding below the $70 level by the option's expiration, on Friday, Dec. 16.

But a preference for puts is nothing new. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly 44 STJ puts for each call over the last two weeks. The resulting put/call volume ratio of 43.93 ranks higher than 92% of the past year's readings. Likewise, the stock's Schaeffer's put/call open interest ratio (SOIR) of 4.16 -- in the 87th annual percentile -- shows an unusually put-skewed approach among short-term options.

These bearish bets come as STJ is set to be bought by Abbott Laboratories (NYSE:ABT) for $85 per share -- an 8% premium over the stock's current levels. In fact, a spokesman from Abbott noted this morning that the deal is still expected to close before the year is out. The recent rush on STJ puts could suggest traders are expecting the deal to fall through. But put buyers could also be shareholders looking to hedge their long positions against a downside surprise.

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