Drug manufacturer Pfizer (PFE) is down 20% over the past year, amid a slowdown in user demand. One investor sees shares trending lower in the weeks ahead.
That’s based on the October 4 $27 puts. With 30 days until expiration, 18,523 contracts traded compared to a prior open interest of 140, for a massive 132-fold rise in volume on the trade. The buyer of the puts paid $0.15 to make the bearish bet.
Pfizer shares recently traded at $29, so the stock would need to drop by $2, or just under 7%, for the option to move in-the-money. The strike price of the option is midway between the current price and Pfizer’s 52-week low of $25.20.
Pfizer’s earnings have dropped by 98% over the last 12 months as the company looks to improve its product pipeline. While earnings are off, revenues did manage to rise by 2%. And shares trade at 11 times forward earnings.
Action to take: Investors might like shares as a potential value play on a small pullback in shares over the coming weeks. The challenges the company is facing today are easily solvable in time.
At current prices, Pfizer pays a 5.8% dividend. Buyer beware, that dividend is in excess of current earnings, and could be in danger of a reduction if operations don’t improve.
For traders, the October 4 $27 puts are well priced for a decline in shares over the coming weeks. Traders could see high double-digit returns or better on a bearish trade here.
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.