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Teva Pharmaceutical Put Volume Pops on Lawsuit Woes

Emma Duncan

Drugmaker Teva Pharmaceutical Industries Ltd (NYSE:TEVA) is tanking this morning, last seen down 12.7% at $12.53, after several U.S. states filed a price-fixing lawsuit against the company, accusing it of scheming to stifle generic drug competition. What's more, already today the security has touched a fresh annual low of $12.45, and is set for its worst session since late 2017. Against this backdrop, TEVA put options are flying off the shelves.

Options traders were extremely optimistic toward the pharma name coming into today. This is per the stock's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which comes in at 5.52 -- in the 95th percentile of its annual range. In other words, almost six calls were bought to open for every put on Teva Pharmaceutical stock during the past two weeks.

Echoing this, the security's Schaeffer's put/call open interest ratio (SOIR) of 0.67 indicates that call open interest easily surpassed put open interest among options expiring within the next three months. This SOIR is in the bottom 10% of its annual range, suggesting short-term options traders had rarely been more call-biased in the past year.

Today, however, the sentiment tides have apparently shifted. Teva stock has already seen roughly 32,000 puts change hands -- 11 times its average morning put volume, and nearly triple the number of calls exchanged. What's more, put volume is pacing for an annual high.

The now at-the-money May 12.50 put is most popular, with nearly 12,000 contracts traded. It looks like many speculators are buying the puts to open, to bet on TEVA shares extending their slide south of $12.50 through the end of the week, before front-month options expire.