FDA Decision Could Spark Additional Downside for Philip Morris Stock

Near-term options traders have been more call-heavy than usual on Philip Morris

Aug 8, 2017 at 12:33 PM
facebook twitter linkedin


Shares of tobacco giant Philip Morris International Inc. (NYSE:PM) have been hit hard recently by the Food and Drug Administration's (FDA) initiative to reduce the amount of nicotine in cigarettes. This troubling fundamental development has smacked PM below once-reliable support at its 60-, 80-, and 100-day moving averages, and this breach could have PM on course to revisit its former highs down around $102.

 

170804pm

 

Despite the stock's technical breakdown, eight of the 10 brokerages covering PM rate it a "buy" or better -- indicating there is plenty of room for downgrades to send the stock lower. There's also very little short-covering potential, with only 0.6% of PM's float sold short.

Adding to the contrarian bearish outlook for the stock, PM has a Schaeffer's put/call open interest ratio (SOIR) of 0.67, which ranks in the 4th percentile of its annual range. This means speculative players have rarely been more call-heavy on underperforming PM, and the unwinding of these bullish bets could provide yet another headwind for the shares going forward.

Lastly, our recommended put has a leverage ratio of negative 8.1, meaning it will double in value on a 10.3% decline in the underlying shares.

Subscribers to Schaeffer's Weekend Trader Series options recommendation service received this PM commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

Grab your FREE Eternal Contrarian report!


 




 
Special Offers from Schaeffer's Trading Partners