Pharmaceutical giant Pfizer (PFE) is down 23% over the past year. One trader sees further weakness ahead for shares in the coming weeks.
That’s based on the August 2 $26 puts. With 28 days until expiration, 15,300 contracts traded compared to a prior open interest of 630, for a 24-fold rise in volume on the trade. The buyer of the puts paid $0.26.
Pfizer recently traded for about $28, so shares would need to drop nearly $2, or nearly 7%, for the option to move in-the-money.
Pfizer already trades closer to its 52-week low of $25.20. And the company reports earnings on July 26, so a miss there could easily send the put option trade in-the-money.
Over the last year, Pfizer’s earnings slid by 44%, and revenues are off by 20%. While Pfizer may be able to add new drugs to its pipeline, that process will take time.
Action to take: Interested investors should hold off for now. At current prices, Pfizer pays a 6% dividend, but that dividend is four times the company’s revenues and is at high risk for a cut. News of a dividend cut will likely lead to a big drop for shares.
For traders, the August $26 puts look attractive even with their short timeframe to play out. Traders can likely see high double-digit returns or better.
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.