Call Players Lose Faith as Gilead Sciences, Inc. (GILD) Slides to New Lows

Long-term underperformer Gilead Sciences, Inc. (GILD) hit a fresh two-year low

Jan 24, 2017 at 2:51 PM
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Drug stock Gilead Sciences, Inc. (NASDAQ:GILD) is down today, last seen 0.9% lower at $70.01, and earlier hit a new two-year low of $69.78. The stock has spent the better part of the last year succumbing to pressure from its 20-week moving average, and the shares recently gave up a foothold at the $72 mark, which had kept losses in check since October. As GILD continues its journey downward, it appears some options traders may be losing faith.

GILD calls are changing hands at three times the expected intraday rate, with volume running in the 98th annual percentile. Responsible for a large portion of today's action, however, are two large trades made by call players rolling down their bets, according to Trade-Alert. Specifically, it appears one trader rolled a block of 10,000 May 75 calls down to the 70 strike, while another rolled her May 85 calls down to the 77.50 strike.

Rolling down a position simply means closing out a higher strike, while simultaneously opening a position at a lower one with the same expiration. Call players rolling down out-of-the-money positions are likely looking to limit their total risk amid tempered expectations. To put it another way, today's traders may have simply lost faith in shares of the drugmaker rallying as far as previously anticipated over the coming months.

In fact, options traders have shown signs of growing skepticism in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), GILD now holds a 10-day put/call volume ratio of 0.61 -- higher than 93% of all other readings from the past year. Two weeks ago, the comparable metric was a much less put-heavy 0.41.

Conversely, short interest on GILD dropped by more than 15% during the two most recent reporting periods, and now represents just 1% of the equity's total float. What's more, 12 out of 20 analysts rate the biotech stock a "buy" or better, while not one calls it a "sell." Suffice it to say, if sentiment here shifts bearishly as it has in the options pits, Gilead Sciences, Inc. (NASDAQ:GILD) could explore lower lows.

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