Biotech Movers: ESRX, CAH, and IBB

Options traders are swarming sinking healthcare concerns Express Scripts Holding Company (NASDAQ:ESRX), Cardinal Health Inc (NYSE:CAH), and the iShares NASDAQ Biotechnology Index ETF (IBB)

by Andrea Kramer

Published on Oct 28, 2016 at 2:40 PM

Healthcare stocks are getting destroyed today, due to a string of poorly received earnings reports and profit warnings. Notably, McKesson Corporation (NYSE:MCK) is exploring three-year lows after slashing its full-year forecast, and analysts said the company's "comments about sell-side margin pressure and price competition will likely spook already skittish drug supply chain investors." The jitters are, in fact, being felt today, with pharmacy benefits manager Express Scripts Holding Company (NASDAQ:ESRX) and pharmaceutical concern Cardinal Health Inc (NYSE:CAH) swimming in red ink, and the iShares NASDAQ Biotechnology Index ETF (IBB) also taking a dive. Here's a quick roundup of ESRX, CAH, and IBB, which are all seeing heavy options volume today.

  • ESRX is down 6.2% at $64.91 -- and just off a two-year low of $64.46 -- on the MCK comments on drug pricing, in which CEO John Hammergren called out "competitive activity that is broader than our original expectations, more aggressive." ESRX stock and options volume are on pace for annual highs, with puts especially popular, running at eight times the average intraday rate. Roughly 18,000 ESRX puts have changed hands so far, compared to 12,000 calls. It looks like some traders may be buying to open the December 65 put, on expectations for Express Scripts Holding Company shares to extend their retreat in the short term. ESRX is already down nearly 26% in 2016, and off the charts is dealing with federal subpoenas and a battle with Anthem Inc (NYSE:ANTM), which accused the company of overcharging for drugs.
  • Amid annual-high stock volume, MCK rival CAH has surrendered 11.5% to sit at $66.24, landing on the short-sale restricted list and just off its own two-year low of $63.26. Adding to the stock's woes, Baird downgraded CAH to "neutral" from "outperform," and sliced its price target by $10 to $82. Nevertheless, CAH call volume is running at 9 times the norm, with more than 4,100 contracts exchanged -- on pace for an annual high. It looks like some traders may be betting on a near-term rebound -- perhaps after Cardinal Health Inc's scheduled earnings release on Monday -- buying to open November and December 70 calls.
  • Finally, amid all the biotech drama -- which includes Amgen, Inc.'s (NASDAQ:AMGN) worst day since 2009 -- IBB has shed 1.9% to trade at $260.44. The exchange-traded fund (ETF) is on pace for a monthly drop of 10%, which would mark its worst month since January, when it fell 21.1%. IBB options are flying off the shelves at twice the average afternoon pace, with roughly 8,300 calls and 10,000 puts traded. It's possible that some eleventh-hour bears are buying to open weekly 10/28 260-strike puts, in the hopes that IBB will extend its journey south of the strike before the close today. Even before today, biotech stocks were at the bottom of our internal Sector Scorecard, with just one-quarter trading above their 80-day moving averages, and the iShares NASDAQ Biotechnology Index ETF (IBB) sporting the second-worst year-to-date return of all ETFs that we track. Currently, IBB is down about 23% in 2016.
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