Call Players Swarm Abbott Laboratories (ABT) On Muddy Waters' St. Jude Slam

Abbott Laboratories (NYSE:ABT) has swung lower today, after Muddy Waters posted some scathing St. Jude Medical, Inc. (NYSE:STJ) tweets

Oct 19, 2016 at 11:17 AM
facebook twitter linkedin

After edging higher out of the gate in the wake of a solid third-quarter earnings report, Abbott Laboratories (NYSE:ABT) has since swung 2.1% lower to trade at $40.30, as the drugmaker battles seering accusations toward St. Jude Medical, Inc. (NYSE:STJ) -- which is in the process of being acquired by ABT -- from Muddy Waters. Specifically, the short seller has taken to Twitter today to post "shocking" videos showing how STJ's heart devices are vulnerable to hackers, and reiterated its short position on STJ stock. And while call volume has caught on fire in ABT's options pits, it looks like one trader is using calls to set a short-term ceiling on the stock.

At last check, roughly 13,000 ABT calls were on the tape -- five times the expected intraday amount of 2,349, and nearly five times the number of puts that have traded. Almost all of the action has centered at the stock's November 44 call, due to one block of 7,578 contracts that crossed about 45 minutes after the open. Per the International Securities Exchange (ISE), this block was sold to open, meaning the trader expects ABT to remain south of $44 through back-month options expiration at the close on Friday, Nov. 18.

Today's November 44 call trader is hardly alone. As it turns out, this strike is home to peak open interest across all of ABT's options series, with 39,582 contracts outstanding. This may explain why the equity's Schaeffer's put/call open interest ratio (SOIR) is tilted in a call-heavy direction -- at 0.50, and in the 8th percentile of its annual range. In fact, the next most populated near-term ABT strike is the October 41 call, where fewer than 10,000 contracts currently reside.

Widening the scope to account for all of ABT's options, speculative players have shown a preference for calls over puts. By the numbers, call open interest accounts for 219,086 contracts outstanding, while just 139,851 puts are presently open on ABT. Both metrics, meanwhile, are docked at a 52-week peak.

Looking outside of the options pits, short sellers have been quick to bet against Abbott Laboratories. Short interest jumped 11.6% in the two most recent reporting periods. While the 72.1 million shares sold short only account for around 5% of ABT's available float, its within striking distance of its mid-August peak of 72.74 shares -- the most in at least 14 years.

Technically, Abbott Laboratories (NYSE:ABT) has shed 12% since topping out at its most recent high of $45.79 in early August. More recently, ABT stock gapped lower just last week, after devastating reports of STJ's implanted heart devices surfaced.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.

Minimize Risk While Maximizing Profits

There is no options strategy like this one, which consistently minimizes risk while maintaining maximum profits. Perfect for traders looking for ways to control risk, reduce losses, and increase the likelihood of success when trading calls and puts. The Schaeffer’s team has over 41 years of options trading success targeting +100% gains on every trade. Rest assured your losses are effectively limited to your initial cost at the time of making your move! Don't waste another second... join us right now before the next trade is released! 



Special Offers from Schaeffer's Trading Partners