Known short seller Andrew Left of Citron Research Tweeted the following regarding pharmacy benefit management company Express Scripts (ESRX):
The stock cratered, since come back a bit:
And short dated put volume exploded. 4x that of calls and 5x average daily volume:
Short dated options prices have exploded, with 30 day at the money implied volatilty at 51%, 2x of last week:
But prior to the excitement there was a suspect trade in the options pits, a purchase of 5391 (7800 have traded on the day) of the Dec 16th 74 puts for $1.55 at 10:45 am when the stock was $74.63. That’s equal to about $835,000 in premium. With the stock now $71.23 as I write, those Dec 74 puts are worth about $4, a $2.45 profit mark to market or about $1.3 million:
Taking a slightly longer term view, the stock has decent technical support in the mid $60s, but there is an air-pocket between $60 and $50 to the downside, just above Left’s price target:
The stock has bounced back intra-day from its lowest levels but vol is still near its highest levels of the day (basically doubling on the report). Bid ask/spreads unfortunately are really wide as well. For those looking to time a short delta entry , the best bet is to use the vol spike and sell upside call spreads. Even if the stock rebounded from here the vol collapse would work as a good counter to the short deltas, and of course if the stock continued lower the spreads couple expire worthless for a profit.