Amgen, Inc. (AMGN) Rewards Option Bears Despite Earnings Beat

Amgen, Inc. (AMGN) is plummeting despite an earnings beat

Oct 28, 2016 at 10:48 AM
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Biotech stock Amgen, Inc. (NASDAQ:AMGN) is no stranger to sliding on drug news. But option bears are getting an extra reward today, as the shares surrender 9.4% to $145.42 -- on track for their worst daily drop since February 2009 -- despite the company beating estimates for earnings and revenue and raising its full-year outlook.

Driving the losses this morning are comments from Amgen's CEO, who stated the company is unlikely to launch a biosimilar version of Humira in 2017 -- a product of rival AbbVie Inc (NYSE:ABBV). On top of that, sales of flagship drug Enbrel came in flat for the quarter, and an analyst at William Blair expressed expectations that "sales will likely move into a period of decline." While AMGN is seated on the short-sale restricted list this morning, action in the stock's options pits has picked up in a big way.

At last check, AMGN options were crossing at roughly 12 times the usual intraday rate, with calls easily outpacing puts. In fact, options volume is on pace to tap an annual high, with more than 35,000 total contracts on the tape so far. As a point of comparison, the average daily volume for AMGN is just 10,000 total options.

Leading the action is the weekly 11/4 152.50-strike call, where buy-to-open action has been spotted. Buyers of the call are betting on AMGN to rebound back above the $152.50 level by next Friday's close, when the option expires. Not everyone is so optimistic, however. Some traders may be purchasing new positions at the weekly 10/28 145-strike put, hoping to see AMGN continue its slide to finish the day below $145.

Pessimism has been the norm among AMGN options traders of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day put/call volume ratio of 0.93 sits in the 80th percentile of its 12-month range. The trend is even more pronounced among near-term speculators, per AMGN's Schaeffer's put/call open interest ratio (SOIR) of 1.53 -- showing put open interest easily outweighing call open interest among options set to expire in three months or less. Moreover, this reading ranks just 4 percentage points from an annual put-skewed high.

Analysts have set their expectations for AMGN fairly low, as well. Of 16 brokerage firms tracking the stock, 11 maintain a lukewarm "hold" rating. Still, a round of bearish attention is hardly out of the question, as not one analyst recommends selling the shares. Plus, the average 12-month price target of $186.24 sits at a hefty premium over current trading levels. Just today, in fact, Credit Suisse dropped its price target to $200, though Goldman Sachs upped its target to $202. 

Technically speaking, Amgen, Inc. (NASDAQ:AMGN) has hardly been inspiring confidence for shareholders lately. After more than tripling in value between mid-2011 and late 2014, the stock has mostly been stuck in a choppy trading pattern between the $140 and $175 levels for the past two years. Today, AMGN could be looking for the $144 level to cap its losses, just as it did in late June.

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