Pharma Bulls Chase Blue-chip Breakout: Options Recap

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A blue-chip drug giant beat estimates this week, and the bulls are chasing in the options market.

As we mentioned on Monday’s Market Action, maker Pfizer (PFE) was expected to announce positive earnings of about $0.74 per share on Tuesday morning. They crushed that number with profit $0.81 per share, driven by pneumonia vaccine Prevnar and arthritis drug Xeljanz.

The shares blasted to levels last seen in early 2002, and yesterday call volume showed traders were looking for even more upside.

Outright buying in the August 37 calls led the charge, which changed hands about 16,000 times for $3.05 to $3.25. Those contracts control the price where investors can purchase stock, which gives them potential leverage to further gains.

Secondly, it looks like someone rolled a covered call. Some 13,000 December 40 calls were purchased against open interest and an equal number of December 41s were sold for a net debt of $0.61. That strategy effectively lets them capture time value in options while riding gains in the common shares. See our Knowledge Center for more.

PFE ended the session up 0.84 percent to $40.27. In general, call volume has outnumbered puts by a 9 to 1 margin with overall options volume totaling 8x the daily average over the past month.

The company also lowered its 2018 revenue expectation to between $53 billion and $55 billion, from $53.5 billion to $55.5 billion, due to a strengthening dollar. The company is the latest U.S. drug maker to trim its annual revenue forecast due to a strengthening dollar.

Pfizer (PFE) chart with key moving averages.
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Dr. Don Pratl is Director of Trader Development and Education for TradeStation. He joined TradeStation in 2016 after holding similar roles with other online brokerages. Don’s long career in the financial services industry reflects expertise in administering trading and investment strategy programs for retail investors as well as financial services professionals. Since the 1980s, he has held various positions in areas including CBOE trading floor order execution, marketing, sales, personnel management, training and customer service. Don holds series 3, 4, 7 and 63 FINRA licenses, earned his Ph.D. in Organization and Management, and his M.A. and B.A. in Political Science. He has been an occasional adjunct college instructor since 2004 at a range of institutions, teaching undergraduate, graduate and doctoral students using in-class and online formats.