Drug manufacturer Pfizer (PFE) has been in a steady downtrend for the past year. One trader is betting that downtrend will continue in the coming weeks.
That’s based on the February 23 $26 puts. With 31 days until expiration, 14,207 contracts traded compared to a prior open interest of 154, for a 92-fold rise in volume on the trade. The buyer of the puts paid $0.28 to make the bearish bet.
Pfizer shares recently traded for about $28, so they would need to drop $2, or about 7 percent, for the option to move in-the-money. That would also place shares near their 52-week low of $25.76.
The drug manufacturer has dropped about 37 percent in the past 12 months, about in-line with the company’s 41 percent decline in revenues.
While operational performance has been lackluster, Pfizer now trades at less than 13 times earnings. And the company has a massive cash hoard of over $44 billion.
Action to take: Investors may want to consider building a position in shares, once the downtrend ends. Until then, shares will likely get cheaper.
At current prices, Pfizer yields almost 6 percent. But that yield may get pushed higher on a further drop in shares.
For traders, the February puts are likely to rise in value, as the downtrend in shares is likely in the coming weeks. The puts could potentially deliver high double-digit gains.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.