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Large, unusual trading volume in Pfizer Inc. (PFE) put options is accruing today, signaling a bearish outlook by institutional investors in PFE stock. This undoubtedly relates to the Chinese tariffs, and investors' concerns.
PFE stock is down 2.82% today to $21.20 after the Chinese authorities signaled a 104% hike in retaliatory tariffs after the U.S. Administration's recent tariff hikes on China.
Since March 7, PFE stock has dropped from $26.73, a fall of over 20.5%.
This latest round of tit for tat tariff hikes between the two countries could take an outsized toll on Pfizer. It has a state-of-the-art manufacturing facility and research centers in China.
Moreover, news reports emerged today indicating that the Trump Administration is going to target drug imports. That is another escalation in the trade war that could harm Pfizer's sales.
As a result, there is a large volume of Pfizer put options today.
Barchart Report - Pfizer Put Options
The Barchart Unusual Stock Options Activity Report today shows huge increases in nearby put options activity in PFE stock. This can be seen in the table below.
The table shows that the May 2 expiry period has had over 12,000 put contracts traded at the $20.00 strike price. That is below today's trading price, making it an out-of-the-money (OTM) play (i.e., about 5.7% OTM).
But the premiums are still high at $0.75 per contract. This means that a buyer of these puts expects that PFE stock will fall to at least $19.24, or over 9.2% from today's midday trading price, over the next three weeks:
$19.24 / $21.20 -1 = 0.9074 -1 = -0.0925 = 9.25% downside
It also means that a short seller of these puts can make at least a 3.65% yield, i.e., on the bid side:
$0.73/$20.00 = 0.0365 = 3.65% short-put yield
In addition, this also means their breakeven price is $20-$0.73, or $19.27, which is 9.1% below today's trading price.
Downside Risks
These are attractive returns to short sellers. However, all bets are off if the Trump Administration keeps hiking tariffs that could impact Pfizer's sales.
For example, analysts are already forecasting lower revenue for the year ending 2025. Last year, Pfizer made $63.63 billion in sales, but analysts are projecting just $62.9 billion this year.
If analysts keep cutting sales projections, this could have a huge knock-on effect on earnings, cash flow and the outlook for the stock's valuation.
Moreover, the market tends to act first and ask questions later. If the upcoming April 29 earnings release shows any guidance for sales weakness, there could be another downturn in PFE stock.
That could be why these May 2 puts are popular with bearish investors right now.
As a result, investors should be careful about shorting these OTM puts just yet, despite the high yield. One way to hedge on the downside is to buy further OTM puts.
For example, the investor who shorts these $20 puts for 73 cents could also buy a $19.00 put for 52 cents on the ask side, for a net credit of 21 cents, or a 1.05 net yield (i.e., $0.21/$20.00).
That means that the net exposure is $1.00 (i.e., $20-$19.00), less $0.21, or $0.79. That means that if the stock falls between $19.79 and $19.00 on or before May 2, the investor could end up with a loss.
As a result, it could be a risky trade to short-sell these OTM PFE puts.
Moreover, if put option buyers are right, and PFE stock is set to fall significantly further, shorting OTM puts here could be costly. Investors should study these risks by going to the Barchart Learn Center to study Options Trading Risks.
