Merck Plunges 4.1% as Trump's Price War and Workforce Cuts Spark Volatility—What's Next for Big Pharma?

Summary
• Merck’s stock slumps 4.11% to $78.39, breaching key support levels after Trump’s aggressive drug pricing demands
• Workforce reductions of 6,000 employees and cost-cutting plans deepen investor unease
• Analysts lower price targets as sector peers like Johnson & Johnson and AbbVie also falter

Merck’s sharp decline reflects a perfect storm of political pressure and internal restructuring. With Trump’s executive orders targeting U.S. drug prices and the company’s own $3B cost-cutting plan, the stock has swung between panic and potential. Traders are now parsing technical breakdowns and options flows to gauge if this is a short-term correction or a deeper sector-wide shift.

Trump’s Pharma Price War and Cost-Cutting Shockwave
Merck’s 4.11% intraday drop stems from dual forces: President Trump’s aggressive letters to 17 major pharma companies demanding price cuts to match international rates, and Merck’s own announcement of a 6,000-employee workforce reduction. The stock’s collapse aligns with broader sector anxiety, as Trump’s rhetoric threatens profit margins for companies like Merck, which relies heavily on high-margin oncology and vaccine sales. Compounding this, Merck’s $3B annual savings plan by 2027—announced alongside Q2 earnings—signals a strategic shift that has rattled investors’ confidence in its long-term growth trajectory.

Pharma Sector Reels as Trump's Price War Spreads—Merck Leads Sell-Off
The Drug Manufacturers - General sector, led by Merck’s -4.51% decline, is under siege. Johnson & Johnson (-1.41%) and AbbVie (-0.12%) also falter, though their declines are muted compared to Merck’s panic-driven selloff. The sector’s 2.05% intraday drop contrasts sharply with the S&P 500’s 0.23% gain, highlighting Trump’s impact on perceived risk in big pharma. Merck’s aggressive cost-cutting and workforce reductions amplify sector-wide fears of margin compression, particularly as Trump’s letters demand immediate price concessions for Medicaid and future drug launches.

Bearish Technicals and Volatility-Driven Options Playbook
• 200-day moving average: 90.42 (well below current price)
• RSI: 42.68 (oversold territory)
• MACD: 0.697 (bearish histogram)
• Bollinger Bands: Price at 78.39, below lower band at 79.35

Merck’s technicals paint a bearish picture, with price action breaking below critical 200-day support and RSI signaling oversold conditions. The stock faces immediate resistance at 81.45 (30D MA) and key support at 73.00 (lower Bollinger Band). Short-term volatility is amplified by Trump’s intervention and Merck’s restructuring, making options a strategic lever. Two standout contracts from the provided chain are:

• MRK20250808P77 (Put, Strike: 77, Expiry: 2025-08-08)
- Implied Volatility: 27.17% (moderate)
- LVR: 99.03% (high leverage)
- Delta: -0.345 (moderate sensitivity)
- Theta: -0.0489 (strong time decay)
- Gamma: 0.1103 (high sensitivity to price swings)
- Turnover: 50,076 (liquid)
- Why it stands out: This put option offers high leverage and gamma, ideal for capitalizing on a potential 5% downside to $74.47. Payoff projection: $2.52/share if price drops to $74.47.

• MRK20250808P78 (Put, Strike: 78, Expiry: 2025-08-08)
- Implied Volatility: 26.98% (moderate)
- LVR: 65.20% (strong leverage)
- Delta: -0.4616 (high sensitivity)
- Theta: -0.0464 (robust time decay)
- Gamma: 0.1197 (high responsiveness)
- Turnover: 26,120 (liquid)
- Why it stands out: This put provides a balanced mix of delta and gamma, positioning it to profit from a moderate 4% decline to $75.47. Payoff projection: $2.92/share if price drops to $75.47.

For a bearish bias, MRK20250808P77 offers explosive potential, while MRK20250808P78 serves as a conservative hedge. Aggressive traders may target a breakdown below $77 to trigger a cascade of put options.

Backtest Merck Stock Performance
The backtest of MRK's performance after an intraday plunge of -4% shows favorable short-to-medium-term gains. The 3-Day win rate is 51.55%, the 10-Day win rate is 52.24%, and the 30-Day win rate is 53.10%, indicating a higher probability of positive returns in the immediate aftermath of such events. The maximum return during the backtest period was 1.21%, which occurred on day 49, suggesting that while the gains may not be substantial, they can still lead to positive outcomes if held for an appropriate period.

Pharma’s Perfect Storm: Trump, Margins, and Merck’s Crossroads
Merck’s 4.11% plunge underscores the fragility of big pharma’s profit model in the face of political intervention and internal restructuring. The stock’s breakdown below key technical levels—coupled with Trump’s pricing demands—signals a high-risk phase for the sector. Investors should monitor the 73.31 (52W low) and 78.35 (lower Bollinger Band) for potential support. Sector leader Johnson & Johnson’s -1.41% drop highlights broader vulnerability, but Merck’s aggressive cost-cutting may eventually stabilize its long-term outlook. For now, bearish options and short-term puts offer tactical entry points as volatility remains elevated.