Bankruptcy Buzz Buries Mallinckrodt Stock

The drugmaker is seeking bankruptcy protection amid a flurry of lawsuits

by Patrick Martin

Published on Sep 5, 2019 at 10:10 AM

The worst stock on the New York Stock Exchange (NYSE) this morning by far is Mallinckrodt PLC (NYSE:MNK), down 36.5% to trade at $1.64. A Bloomberg report late last night said the company had hired restructuring firms and was considering seeking bankruptcy protection. The drugmaker faces a litany of lawsuits over its role in the opioid addiction crisis, as well as controversy over its Acthar gel treatment. BMO has come forward already with a downgrade to "market perform" from "outperform." 

Mallinckrodt stock earlier traded at a new record low of $1.49. MNK climbed as high as $27.30 back in late February, but has spiraled lower since thanks to a combination of April and May bear gaps as well as consistent pressure from its 20-day moving average this summer. There's no positive way to spin the freefall; the shares have logged only two weekly wins since June, and are fresh off their worst month ever.

Analysts have largely ditched the drugmaker, with 13 of 15 in coverage rating it a "hold" or worse. Short sellers have been piling on too, with short interest up 16.8% in the two most recent reporting periods to a record high 42.72 million shares. This takes up more than half of MNK's total available float, and 11.6 times the average daily trading volume.

In the options pits though, calls have been popular. On the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a 10-day call/put volume ratio of 3.82. This ratio registers in the 82nd percentile of its annual range, pointing to a much healthier-than-usual appetite for bullish options bets over bearish in the past two weeks. However, given the amount of short interest tied up into the stock, some of that call buying -- particularly at out-of-the-money strikes -- may have been attributable to shorts seeking an options hedge

Puts have exploded in popularity today though. At last check, 5,600 put options have already changed hands -- 12 times the average intraday amount and already toppling the average daily volume just the first 30 minutes of trading. Leading the charge is the January 2020 5-strike put.

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