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
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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.

 

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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.

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