Large Option Trader Makes Aggressive Bearish Play On Teva

Teva Pharmaceutical Industries Ltd TEVA shares are down 66.1% in the past year on fears about the negative impact of opioid litigation. A series of unusually large options trades Monday morning suggests at least one large trader thinks Teva has even more downside ahead.

The Trades

On Monday morning, Benzinga Pro subscribers were alerted to several large Teva options trades.

At 8:34 a.m., a trader purchased 714 Teva put options at a $8.50 strike price that expire on Friday. The puts were bought at the ask price of 80.1 cents and represent a $57,191 bearish bet that Teva shares will be trading at or below $7.70 by the end of the week.

At 9:10 a.m., a trader bought 6,489 Teva Jan. 17, 2020 $9 put options at the ask price of $2.061. This second trade represented another $1.33 million bearish bet Teva shares will be trading at or below $6.94 within six months.

Within a minute, three more trades went through.

First, likely the same trader bought 1,586 Teva put options with a strike price of $7 expiring on Dec. 20. The puts were bought at the ask price of 88.1 cents and represent a $139,726 bearish bet on Teva. The second trade was 1,410 Teva Dec. 20 puts at an $8 strike price. The buyer paid the ask price of $1.40, and the trade represented a $197,400 bearish bet. The third trade was another Teva put purchase, this time for 1,370 contracts at a $7 strike price expiring on Oct. 18. The trader again paid the ask price of 62 cents, and the trade represented am $84,940 bearish bet.

An hour later at 10:11 a.m., two more Teva options trader were executed, but this time the trading action was bullish. The first trade was the sale of 1,600 Jan. 17, 2020 Teva puts with a $9 strike price at the bid price of $2.142. Likely the same trader dumped another 786 of the same contracts at the bid price of $2.149 less than a minute later. These two trades may have been the same trader that purchased the Jan. 2020 $9 puts earlier in the morning.

All together, the trades represented a net bearish bet on Teva worth about $1.32 million.

Options Insight

Even traders who focus exclusively on the stock market watch the options market closely to gain insight into what option traders may be thinking.

Due to the relative complexity of the options market, options traders are generally seen as more sophisticated than the typical stock trader. Large options traders are often institutions or wealthy individuals that may have a unique perspective and/or advance information on a given stock.

Litigation An Long-Term Concern?

The bearish trading action comes a week after Morgan Stanley analyst David Risinger downgraded Teva and said pharma investors can expect significant earnings multiple contraction due to extended buying group pricing pressures coupled with increasing competition among generic drug manufacturers. Risinger also said he's “most concerned about further potential downside for ENDP & TEVA due to branded opioid exposure.”

Teva is expected to report quarterly earnings numbers on Aug. 7. The traders may expect some negative commentary on opioid uncertainty on the earnings call.

Unfortunately, there’s no way to be 100% certain whether the buys are a standalone position or a hedge against a larger stock holding.

Given the combined value of Wednesday’s trades is easily over $1 million in size, they could potentially be institutional hedges against a rebound in Teva shares. The fact that a $1.33 million put purchase was part of a group of four large trades that all took place within about a minute is further evidence that at least part of Monday morning’s Teva trading action likely came from an institution.

Teva's stock traded around $7.66 per share at time of publication.

Related Links:

Morgan Stanley Downgrades Teva, Endo On Drug Pricing And Litigation Concerns

How To Read And Trade An Options Alert