How the bears are playing Allergan
David Russell | [email protected]
optionMONSTER's Depth Charge monitoring program detected the purchase of almost 5,000 May 110 puts, most of which priced for $2.40, against open interest of 1,545 contracts. They also snapped up more than 2,600 May 110s for $0.55 to $0.80.
Puts lock in the price where investors can sell shares in the Botox maker, no matter how low they go. That gives them a strong inverse correlation to the stock price, so they make money to the downside. (See our Education section)
AGN is down 7.22 percent to $105.35 this morning but is up 18 percent so far this year. The drug maker broke out to new all-time highs in January and kept climbing through early last month, when it started drifting lower.
Today's drop comes after the company forecast second-quarter earnings of no more than $1.20 a share, below the $1.22 expected by analysts. Sales were forecast at $1.50 billion to $1.575 billion, which suggests that it will also miss the $1.57 billion estimate.
Total option volume is 28 times greater than average in AGN so far today, with puts accounting for more than two-thirds of the total.
Disclosure: I own AGN shares.