Trump Tailwinds Trigger Celgene Corporation (CELG) Call Buying

Celgene Corporation's (CELG) red-hot stock is representative of big pharma's post-election performance

Nov 9, 2016 at 2:11 PM
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Drug stocks have caught fire in the wake of Donald Trump's Election Day win. Big pharma is especially hot, with BMO Capital citing potentially less pricing pressure, an Obamacare repeal, and lower corporate tax rates under a Trump presidency. Among the major big-cap winners is Celgene Corporation (NASDAQ:CELG), with its market capitalization upwards of $90 billion. What's more, stock volume has already reached an annual high, and options volume is on track for the same.

The call side of the aisle has been especially busy. At last check, roughly 50,400 contracts have been exchanged, quintupling the usual intraday rate, and more than tripling the pace of puts. The most active strike is the now in-the-money December 110 call, where buy-to-open activity is likely, per Trade-Alert. By purchasing these contracts, traders are banking on an extended upside run for CELG through December expiration.

Call buyers are no strangers to the stock. Over the last four weeks, Celgene traders have bought to open 2.63 calls for every put at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Not to mention, the shares sport a Schaeffer's put/call open interest ratio (SOIR) of 0.62, which sits only 5 percentage points from a 12-month low.

Elsewhere, the brokerage crowd has been extremely optimistic toward CELG, too. Specifically, 14 of 16 analysts rate the drug stock a "strong buy," with not a single "sell" opinion to be found. Moreover, the consensus 12-month price target of $137.39 rests in territory not explored since July 2015.

Not everyone's been so rosy toward CELG, though. In particular, short sellers have been pounding the stock, with these bearish bets jumping over 29% in the past two reporting periods. In fact, it's possible some shorts have been the source of the aforementioned call buying, with the options serving as an upside hedge.

Based on today's price action, hedging would've been the smart play for short sellers. At last check, Celgene shares were up nearly 10% at $119.04, fresh off an annual high of $127, and among the top performers on the S&P 500 Health Care Index.

What's more, Celgene Corporation (NASDAQ:CELG) is now trading well above its 80-day moving average -- a rare feat for drug stocks of late. According to our internal Sector Scorecard, only 10% of the 39 pharmaceutical firms we track had shares above that trendline, as of last night's close -- among the worst of any sector. Indeed, the average year-to-date loss for stocks under this umbrella was almost 20%, suggesting today's breakout represents a welcome change of pace.

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