This Pharma Stock Looks Like a Great Pre-Holiday Buy

Short-term options traders have rarely been more put-biased

Nov 26, 2021 at 12:10 PM
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Pharmaceutical name Eli Lilly And Co (NYSE:LLY) is breaking out in a flag pattern, with support from the 20-day moving average, as well as the +50% year-to-date level. What’s more, the stock is sitting at the $250 billion market-cap level, and is within just 5% of its 12-month consensus target price of $273.74, suggesting price-target hikes could be on the horizon. In other words, now looks like an ideal opportunity to bet on a move higher for LLY.


A sentiment shift in the options pits could create additional tailwinds for Eli Lilly stock. This is per the security’s 10-day put/call volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which stands higher than 83% of readings from the past 12 months. This indicates puts have been getting picked up at a much faster-than-usual pace over the last two weeks.

Echoing this, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.44 stands higher than 93% of all annual readings, implying short-term options traders have rarely been more put-biased.

The equity sports affordably priced premiums at the moment, too. This is per LLY’s Schaeffer's Volatility Index (SVI) of 26%, which sits higher than just 21% of readings from the last year. To put it simply, options players are pricing in relatively low volatility expectations right now.

Plus, the security's Schaeffer's Volatility Scorecard (SVS) rating sits at 99 out of 100, suggesting Eli Lilly stock has exceeded volatility expectations during the past year -- a boon for premium buyers. Our recommended call has a leverage ratio of 8.9, and will double in value on an 11.8% rise in the underlying equity.


Subscribers to Schaeffer's Weekend Trader options recommendation service received this LLY 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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