3 Biotechs Seeing Heavy Put Volume After Trump Tweet

Healthcare stocks are taking a hit today after Trump tweeted about plans he's working on to rein in drug prices

Mar 7, 2017 at 2:18 PM
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The healthcare sector is in focus today, after House Republicans released their plan to replace the Affordable Care Act (ACA), which is commonly referred to as Obamacare. Putting downward pressure on the sector is President Donald Trump's tweet that took aim at drug prices. While embattled drug stock Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is one of the leading laggards on the New York Stock Exchange (NYSE), the iShares Nasdaq Biotechnology ETF (IBB), SPDR S&P Biotech ETF (XBI), and Health Care Select Sector SPDR Fund (XLV) are all trading lower. Plus, the move to the downside has sparked a rush of put activity on the shares of each exchange-traded fund (ETF).

IBB Off Session Lows, But Puts Still Popular

IBB was down nearly 2% at its intraday low, but has since pared its loss to 0.9% after finding a foothold in the $295 region, home to a 23.6% Fibonacci retracement of its late-January through early March surge. At last check, the shares of iShares Nasdaq Biotechnology ETF were trading at $297.22, while put volume was running at 1.9 times what's typically seen at this point in the day. The weekly 3/10 290-strike put -- which expires at this Friday's close -- is among the most active, though it's unclear whether positions are being opened or closed. More broadly, options traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open puts over calls at a faster-than-usual clip in recent weeks, per the ETF's 10-day put/call volume ratio of 1.36, in the elevated 87th annual percentile.

XBI Options Trader Gets Crafty With Puts

XBI bottomed at $69.19 earlier, but was more recently seen trading down 0.8% at $70.16. Longer term, the ETF is up 18.6% year-to-date, and hit an annual high of $72.43 last Thursday. Put volume, meanwhile, has swelled to three times the average intraday pace, with over 40,000 contracts traded. The bulk of the activity appears to be at the hands of one trader, who may have sold to close her March 63 puts ahead of next Friday's expiration, and subsequently initiated a long put spread at the April 62 and 69 strikes. Puts are popular among short-term SPDR S&P Biotech ETF options traders. The ETF's Schaeffer's put/call open interest ratio (SOIR) sits at a top-heavy 2.07, and is ranked higher than 86% of all comparable readings taken in the past year.

XLV Put Buyers Brace for a Six-Month Swoon

XLV shed 1% at the open, and was last seen trading 0.4% lower at $75.21. The ETF is up 14% since its early November lows, and considering its 14-day Relative Strength Index (RSI) closed at 74 last night -- in overbought territory -- a near-term breather may have been in the cards. Options traders have been bracing for a retreat, too, per XLV's 10-day ISE/CBOE/PHLX put/call volume ratio of 2.77, which is ranked above 69% of all comparable readings taken in the past year. The trend is continuing today, with 15,000 puts on the tape -- two times the expected intraday amount. The bulk of the action has centered at the September 69 put, where it seems safe to assume new positions were purchased. In other words, options traders think the Health Care Select Sector SPDR Fund will breach $69 over the next six months, territory not charted since January.

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