Pfizer Inc. (PFE) Sees a Surge In Pre-Earnings Call Buying

Pfizer Inc. (NYSE:PFE) will report earnings tomorrow morning, and call buying is picking up steam

Oct 31, 2016 at 2:23 PM
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Pfizer Inc. (NYSE:PFE) options traders have shown a growing affinity for long calls over puts of late, with the drug company's quarterly earnings due tomorrow morning and the U.S. presidential election on the docket next Tuesday, Nov. 8. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the Dow stock's 10-day call/put volume ratio has surged to 12.58 from 1.12 in the past two weeks, and is now ranked in the 100th annual percentile. In other words, calls have been bought to open over puts on PFE stock at the fastest clip of the year.

While a number of call players have targeted options in PFE's January 2017 series, nearer-term traders have honed in on the November 33 call. This out-of-the-money strike has seen 7,770 contracts added in the last two weeks, and is now home to peak call open interest of 41,114 options in the front-month series. According to the major options exchanges, a healthy portion of this activity has been of the buy-to-open kind, too, meaning traders expect PFE to surge north of $33 in the next several weeks.

Today, PFE options volume is accelerated, with the 48,000 contracts traded -- roughly double what's typically seen at this point in the day. While the January 2017 32-strike call has seen the most action, the 33 strike is popular among pre-earnings options traders. Specifically, it looks like traders may be purchasing new positions at PFE's weekly 11/4 33-strike call, betting on the equity to topple the strike by expiration at this Friday's close.

Outside of the options arena, traders have been expressing more unease. Short interest on PFE jumped 6.9% in the most recent reporting period. And while the 46.6 million shorted shares represent just 0.8% of the stock's available float, this could indicate that the recent jump in call buying is a result of short sellers hedging against any unexpected post-earnings and/or post-election upside. Additionally, it also suggests that PFE's bearish bandwagon is far from crowded, and a continued rise in short selling could create a headwind for the shares.

In fact, since topping out at a 12-year peak of $37.39 in early August, shares of PFE have shed 15%. Plus, although the stock received a "buy" recommendation at Berman Sarrazin earlier, it was last seen down 0.5% at $31.77. Nevertheless, today's negative price action is finding a foothold in the $31.60-$31.75 range, home to a 38.2% Fibonacci retracement of PFE's February low and August high.

Historically, it's been a mixed bag for Pfizer Inc. (NYSE:PFE) shares in the session subsequent to reporting earnings, with the stock recording post-earnings moves to the upside in four of the past eight quarters. This time around, the options market is pricing in a single-session post-earnings move of 3.5%, regardless of direction.

Meanwhile, the pharmaceutical sector will likely remain in focus through next week's U.S. presidential election. While uncertainty is growing ahead of the event due to last Friday's shocking October surprise, Democratic candidate Hillary Clinton has been critical of price-gouging drug companies.

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