By Josh Selway / September 18, 2017 / www.schaeffersresearch.com /
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Tobacco stocks were again in focus last week after the Food and Drug Administration (FDA) issued revised guidelines for tobacco manufacturers. Specifically, Altria Group Inc (NYSE:MO) and Philip Morris International Inc. (NYSE:PM) have both been seeing heavy put trading, as many options traders bet on short-term struggles for the shares.
Near-Term Put Traders Pounce on MO
Starting with Altria, put volume ended at four times the expected rate on Friday, with around 22,000 puts traded, compared to fewer than 6,300 calls. The most popular option was the October 62.50 put, where it's possible traders were buying to open positions. These put buyers would be eyeing a move below $62.50 for MO, which was last seen trading right near this strike.
This put-skew is continuing today, too, as the security's single-day put/call volume ratio of 1.45 ranks in the 88th annual percentile. Going back further, though, long calls have been the options of choice. Specifically, nearly 30,900 calls have been bought to open during the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), compared to just under 22,000 puts.
During the past year, Altria has shown a tendency to exceed options traders' volatility expectations. This is according to the stock's Schaeffer's Volatility Scorecard (SVS) of 87. Year-over-year, the shares have dropped 0.5%, and have been trading below their 20-day moving average since their late-July bear gap.
Puts Unusually Popular for Philip Morris
As for Philip Morris, put volume closed at three times the norm on Friday. While a good portion of this activity occurred in the now-expired September series, the October 115 put was also popular. Those buying to open positions here are hoping for PM shares to fall below $115 by the close on Friday, Oct. 20, when front-month options expire.
In today's session, puts are trading at two times the pace expected. The December 110 put is the most popular contract by far, and data suggests new positions are being purchased. Those buying the puts expect the equity to breach $110 in the coming months, while sellers are betting on this level acting as support.
Recent options data points to a strong bias for put buying on Philip Morris. For instance, the security has a 10-day put/call volume ratio of 2.48 at the ISE, CBOE, and PHLX. Not only does this show more than two puts have been bought to open for every call over the last two weeks, but this ratio ranks in the bearish 92nd annual percentile.
Looking at the charts paints a much rosier picture for PM stock than Altria. The shares boast a 12-month advance of more than 17%, last seen trading at $115.82. And although the equity has pulled back from its record high of $123.55 from June 20, it is finding support from its 150-day moving average, which neatly contained its sharp pullback in July.