U.S. Markets closed

Teva Pharmaceutical Option Bull Makes a Bold Bet

Karee Venema

Teva Pharmaceutical Industries Ltd (NYSE:TEVA) is in the news today, after OxyContin maker Purdue Pharma and several members of the Sackler family, which own the company, reached a $270 million settlement with the state of Oklahoma over a 2017 lawsuit that accused Purdue Pharma, Johnson & Johnson (JNJ), and Teva Pharmaceutical of deceptive marketing practices that helped fuel an opioid abuse epidemic. Claims against JNJ and TEVA are still pending.

TEVA stock has struggled to find direction in the wake of the news, trading on both sides of breakeven today. At last check, the equity was up 0.2% at $15.93, looking to snap its two-day losing streak. Longer term, the shares have shed more than 21% since an unsuccessful test of the round $20 region and 320-day moving average in early February, with a recent rally attempt quickly contained by the security's 30-day trendline.

teva stock daily chart march 26

Nevertheless, call volume has exploded today, with nearly 107,000 contracts on the tape -- 12 times the average intraday amount and 32 times the number of puts exchanged. Trade-Alert highlights a bold play using the January 2020 17.50-strike and 22.50-strike calls, where more than 100,000 contracts have collectively traded.

Specifically, it looks as if one trader bought to open 40,000 17.50-strike calls for $1.65 each, while simultaneously selling to open 60,000 22.50-strike calls for 42 cents apiece. Trade-Alert suggests by initiating the 2x3 call ratio spread, the speculator is targeting a move to $22.50 by January 2020 options expiration, a 41% rally from current levels.