Scathing Citron Note Ignites a Run On Express Scripts Holding Company (ESRX) Puts

One put player may have put up six figures betting against Express Scripts Holding Company (ESRX)

Dec 8, 2016 at 3:20 PM
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Express Scripts Holding Company (NASDAQ:ESRX) appears to be the latest victim of notorious short seller Citron Research. The firm's scathing comments have sent numerous names plummeting in the past, and it's more of the same today. At last check, ESRX has dropped 7.6% to $70.07 amid heavy stock and options volume, after Citron called the company the "Philidor of the pharma industry," and added that Express Scripts is "the culprit behind pharmaceutical price gouging."

What's more, the short seller made reference to President-elect Donald Trump's recent comments regarding a crackdown on drug prices, suggesting that when Trump takes action against ESRX, "heads will roll." Citron likewise set a low $45 price target -- territory not seen in roughly five years.

With ESRX on the short-sale restricted list, puts are trading at 12 times the typical intraday rate, and have already hit an annual high for daily volume. Today's short-term traders may be paying extra-high premiums, too, as the stock's 30-day at-the-money implied volatility has more than doubled from Wednesday's close to notch a new 12-month peak, at 57.1%.

Leading today's action is the December 74 put, where a 5,391-contract block was traded earlier today for $1.55 apiece. If these puts were bought to open -- as Trade-Alert suggests -- the trader paid an initial premium of over $835,000 (premium paid * number of contracts * 100 shares per contract). The goal would be for ESRX to extend its run south of $74 though front-month expiration at the close on Friday, Dec. 16. However, it's worth noting the contract is currently being bid at $4.70, suggesting the potential buyer is already staring at paper profits of more than 200%.

From a broader standpoint, put buying is nothing new in ESRX's options pits. In fact, the stock's 50-day put/call volume ratio of 1.63 across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks higher than 79% of the past year's readings. Likewise, its Schaeffer's put/call open interest ratio (SOIR) of 0.96 -- in the 69th annual percentile -- indicates near-term speculators are more put-skewed than usual.

There's plenty of pessimism to be found outside of the options pits, as well. Short interest on the stock, while relatively low at 4% of ESRX's available float, saw a 5% uptick in the most recent reporting period. Plus, 11 of 19 tracking analysts currently call the equity a "hold" or a "strong sell."

While it's hard to say whether Citron's claims have any merit, Express Scripts Holding Company (NASDAQ:ESRX) certainly hasn't been much to write home about, from a technical point of view. The shares have widened their year-to-date loss to nearly 20%. The stock now finds itself back in the $69-$71 region, where it spent the bulk of September and October trading sideways.

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