Bullish Options Trading Spikes as Pfizer Stock Hits New High

Low volatility expectations are priced into short-term PFE options

Sep 12, 2017 at 2:38 PM
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Pfizer Inc. (NYSE:PFE) is popping today, following several of its fellow biotech stocks higher. At last check, PFE shares were up 3% to trade at $35.37, and earlier hit a 13-month high of $35.75. Bullish options traders are flooding the Dow stock, too, with one trader eyeing even higher highs over the next several months.

With around two hours left in the trading session, nearly 132,000 PFE calls have traded -- 12 times the expected intraday rate, and a new 52-week peak -- compared to 15,000 puts. Most notably, a block of 52,637 January 2018 36-strike calls changed hands for 72 cents apiece. Trade-Alert indicates the calls were bought to open, creating an initial cash outlay of roughly $3.8 million (number of contracts * premium paid * 100 shares per contract).

This is the most the call buyer stands to lose, should PFE settle below $36 at the close on Friday, Jan. 19. Profit, meanwhile, will accumulate on a move above breakeven at $36.72 (strike plus premium paid). Delta on the call is docked at 0.42, pointing to a 42% chance it will expire in the money.

This bullish bias isn't anything new for Pfizer options traders. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 18,227 calls in the last 10 days, compared to 5,921 puts. The resultant call/put volume ratio of 3.08 ranks in the 78th annual percentile, meaning long calls have been initiated over puts at a faster-than-usual clip.

Echoing this call-skew is PFE's Schaeffer's put/call open interest ratio (SOIR) of 0.60, which rests lower than 93% of all comparable readings taken in the past year. In other words, traders have rarely been more call-heavy among options set to expire in three months or less.

It's a prime time to buy short-term options on Pfizer stock, too. Its Schaeffer's Volatility Index (SVI) of 11% ranks just 1 percentage point from a 52-week bottom, indicating extremely low volatility expectations are being priced into near-term options.
 

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