Mylan Stock Put Options Heat Up on Expanded Price-Fixing Probe

Short-term volatility expectations are heating up on MYL stock

Oct 31, 2017 at 1:57 PM
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Shares of Mylan N.V. (NASDAQ:MYL) are spiraling today, after Rajiv Malik -- the drugmaker's president and executive director -- was named in a civil investigation by 45 states and the District of Columbia against pharmaceutical firms in a price-fixing lawsuit. At last check, MYL stock was down 7.2% at $35.50 -- and options traders are betting on even more downside by week's end.

By the numbers, roughly 12,500 calls and 10,600 puts have traded so far, nearly triple what's typically seen at this point in the day, and volume pacing in the 94th annual percentile. Short-term volatility expectations have ramped up, too, based on MYL's 30-day at-the-money implied volatility -- up 18.6% to 41.6%, good enough to rank in the 95th annual percentile.

Drilling down, the weekly 11/3 35.50- and 37.50-strike puts have seen notable attention, and it seems safe to assume new positions are being purchased here. If this is the case, options traders expect MYL to continue its retreat south of the strikes through expiration at this Friday's close. Traders may also be buying to open the weekly 11/10 35.50-strike and November 37.50 put, whose lifetimes include the company's upcoming earnings report, due ahead of next Monday's open.

More broadly, it's been call buyers who've been busier than usual in recent weeks. While the January 40 call is most active today, and looks to be seeing buy-to-open action, options traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 10,607 calls in the last 10 sessions, compared to 4,611 puts. The resultant call/put volume ratio of 2.30 ranks higher than 71% of all comparable readings taken in the past year.

The bulk of this activity appears to have centered at the December 45 call, which saw 6,256 contracts added over this time frame -- the most of any MYL option. Data from the major options exchanges confirms the calls were mostly bought to open, indicating options traders are eyeing a move to levels not seen since March over the next two months.

Since topping out at an annual high of $45.87 in early March, the shares of Mylan have plunged nearly 23%. And while a big regulatory win earlier this month helped MYL stock close its early August bear gap, today's plunge has the shares paring these recent gains -- and on track to close south of their 30-day moving average for the first time since late September.

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