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Monday, February 6, 2023


Long-Term Bulls Eye Express Scripts Options…Again

Today’s tickers: ESRX, RPTP, SKX & SLAB

ESRX – Express Scripts, Inc. – Sizable bullish bets in long-dated call and put options on the pharmacy benefit management services provider suggest shares in Express Scripts may sky-rocket over the next year and a half. Similar options combination plays were initiated at the end of last week following news Express Scripts agreed to purchase rival Medco Health Solutions Inc. for $29.1 billion in a deal that would make the company the largest U.S. pharmacy benefits manager. Shares in Saint Louis, MO-based Express Scripts slipped 0.60% during the first half of the trading session to $56.95 as of 11:50 am ET. The price of the underlying rallied as much as 12.0% to $57.47 on news of the merger agreement. Large prints in January 2013 contract on Friday appeared to be the work of an investor selling blocks of puts to partially finance the purchase of a bull call spread. The strategist responsible for the four-legged transaction rakes in maximum available profits on the trade if shares in ESRX top $70.00 at expiration. Heavy trading in the same expiry within the first hour of the opening bell indicates another options player may see shares in Express Scripts soaring to $80.00 during the next 18 months. The more recent long-term bullish combo trade on Express Scripts differs somewhat from that observed on Friday, but both transactions are looking for shares to reach all-time highs. The investor this morning appears to have sold 8,000 puts at the Jan. 2013 $42.5 strike for a premium of $2.19 each, spread against the purchase of an 8,000-lot Jan. 2013 $65/$80 call spread at a net premium of $3.34 per contract. The sale of the put options reduces the net cost of the three-way transaction to $1.15 per contract, thus positioning the investor to profit should shares in Express Scripts surge 16.2% over the current price of $56.95 to surpass the effective breakeven point to the upside at $66.15 at Jan. 2013 expiration. The trader stands ready to pocket maximum potential profits of $13.85 per contract in the event that ESRX shares jump 40.5% to exceed $80.00 at expiration. Shares in the PBM recently secured a record-high of $60.89 at the end of May.

RPTP – Raptor Pharmaceutical Corp. – Options on the biotechnology company are far more active than usual this morning after the company said a phase 3 clinical trial of a delayed release version of its key drug to treat nephropathic cystinosis met the main goal of the trial. Shares in Raptor were positive in pre-market trade, but dropped as much as 44.0% at the start of the session to hit an intraday low of $3.90. The price of the underlying currently stands 22.3% lower on the day at $5.40 as of 12:45 pm ET. While some traders are dabbling in put options to position for further bearish movement in RPTP shares, other investors appear to be positioning for a rebound in the next several months. August $7.5 strike calls attracted light buying, but volume is heaviest out at the November $5.0 strike where more than 4,100 in-the-money calls changed hands against open interest of 232 contracts. It looks like investors purchased most of the calls exchanged at the Nov. $5.0 strike for an average premium of $1.28 a-pop. Call buyers profit if shares in Raptor Pharmaceutical Corp. increase 16.3% over the current price of $5.40 to trade above the average breakeven point to the upside at $6.28 by expiration day in November. Options implied volatility on RPTP is down 40.7% to arrive at 103.73% this afternoon following the results of the late-stage trial. Options volume on the stock swelled to 12,980 contracts by 12:50 pm in New York, which is substantial relative to Raptor’s overall open interest reading of 17,437 contracts.

SKX – Skechers USA, Inc. – Shares in the designer and marketer of Skechers-branded footwear are up 0.15% at $14.50 today ahead of the company’s second-quarter earnings report after the final bell on Wednesday. Investors expecting shares to SKX to rally in the coming months picked up call options in the September and October contracts. Bulls purchased more than 500 calls at the September $15 strike for an average premium of $0.85 a-pop against open interest of just 66 contracts. Call buyers profit if shares in the shoemaker rally 9.3% in the next couple of months to surpass the average breakeven price of $15.85 at expiration in September. Trading traffic in Skechers options is heaviest out at the October $15 strike where more than 2,200 calls changed hands against open interest of 1,660 contracts. It looks like the bulk of volume was initiated by buyers paying an average premium of $1.07 apiece. Traders long the calls make money if shares in SKX jump 10.8% to exceed the average breakeven price of $16.07 by expiration in October. Open interest patterns at the October $15 strike suggest most of the calls were purchased by like-minded bulls at the end of June for around $1.27 each. A positive earnings surprise from the footwear provider come Wednesday will likely send shares and call premium sharply higher, while disappointing results are likely to spur adverse moves in both to the detriment of bullish speculators.

SLAB – Silicon Laboratories, Inc. – The maker of mixed-signal integrated circuits and other analog chips posted better-than-expected second-quarter results ahead of the bell this morning, but the company’s third-quarter guidance estimating revenue may decline in the next quarter sent shares in Silicon Laboratories down as much as 13.8% at the start of the trading day to $35.96. Put activity on SLAB today suggests some pre-earnings players may be taking profits off the table following the sharp correction in the price of the underlying. Meanwhile, traders purchasing puts on the stock today are positioning for shares to continue to decline in the months ahead. Investors selling out-of-the-money calls appear to have little hope that Silicon Laboratories shares will make a full recovery to pre-report levels in the near term. Options volume on SLAB is heaviest at the August $40 strike where some 1,330 puts changed hands against open interest of 2,444 contracts. Open interest at that strike suggests the majority of the positions were initiated by buyers paying an average premium of $1.17 each back on July 21. The puts today trade at a premium of $3.90 each, or roughly 3 times their price less than a week ago. Earlier in July, buyers of longer-dated bearish put options at the October $45 strike paid an average premium of $3.90 a-pop for 1,000 contracts on July 7. Open interest at that strike stands at 2,592 contracts. Today, a chunk of 1,000 now deep in-the-money October $45 strike put options appears to have been sold at a premium of $8.20 apiece. Pre-earnings bearish bets on the chipmaker certainly seem to have paid off for some strategists in the aftermath of the second-quarter report.

Andrew Wilkinson

Senior Market Analyst


Caitlin Duffy

Equity Options Analyst


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