McKesson Put Volume Peaks After Citron Report

Bears have blasted MCK stock in recent weeks

by Karee Venema

Published on Sep 27, 2019 at 1:36 PM
Updated on Sep 27, 2019 at 1:53 PM

McKesson Corporation (NYSE:MCK) stock is trading lower today, after the Texas-based pharmaceutical firm became the target of Citron Research. In a report titled, "The Two Words That Will Wipe Out Half of McKesson's Equity -- 'Public Nuisance'," the short seller called the company "complicit in fueling the opioid crisis," and said recent court documents in multi-state opioid lawsuits reveal a "reality that takes McKesson stock price to $80."

In reaction, MCK dropped as low as $131.39 earlier, but found support at its rising 120-day moving average, which caught a late-May pullback, as well. The stock has since pared its intraday loss to 2.9% to trade at $135.13. Today's drop puts the shares on track for back-to-back monthly losses -- down more than 2% so far in September, but longer term, the equity is still up 23.3% year-to-date.

Options traders today are bracing for even bigger losses for the drug distributor. More than 10,300 puts have changed hands already -- 10 times what's typically seen, and a new 52-week peak. The weekly 10/4 140-strike put is most active, and it looks like new positions are being purchased here for a volume-weighted average price of $5.82. If this is the case, breakeven for the put buyers at the close next Friday, Oct. 4, when the weekly options expire, is $134.18 (strike less premium paid).

The withstanding bias in McKesson's options pits its overwhelmingly bearish. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 10.31 ranks in the 100th annual percentile, meaning puts have been bought to open over calls at a quicker-than-usual clip.

Analysts have been skeptical, too, with seven of the 11 covering brokerages maintaining a lukewarm "hold" recommendation. However, the average 12-month price target of $154.19 is a healthy 14.2% premium to current levels -- and above MCK shares' Aug. 23 annual high of $150.75.

mck stock daily price chart on sept 27

 


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