Why bears are bucking Novartis pop

By David Russell,

Shutterstock photo

Novartis enjoyed a pop after the Federal Reserve's announcement yesterday, and the bears wasted no time in pouncing on its options.

NVS followed other stocks higher after the central bank said it would buy more government debt. The Swiss drug maker topped out at $51.44, slightly below a level where the shares peaked in mid-July.

NVS Chart optionMONSTER's Depth Charge system showed heavy activity at the September 50 puts within a few minutes of NVS reversing from that level. Buyers initially paid $0.90, but premiums then rose to $1 as the shares pushed lower. By the end of the session, 11,243 contracts had traded, about 180 times open interest in the strike.

NVS ended the session with a 1.47 percent gain at $51.22. The shares fell sharply after breaking an uptrend in early April and now are attempting to regain their footing.

The stock had spiked as high as $51.62 on July 15 after management raised its full-year forecast amid strong sales of branded and generic drugs, but the shares were unable to hold the gains.

Yesterday's put buying may have been an outright bearish play or the work of new shareholders who had bought the stock and wanted protection.

The trades dominated option activity in NVS and pushed total volume to 12 times greater than average. Puts outnumbered calls by a 37-to-1 ratio, according to the Depth Charge.

(Chart courtesy of tradeMONSTER)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: NVS

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