Pfizer Stock Sees Unusual Put Option Activity: A Sign of Investor Sentiment?

Unusual put option activity in Pfizer (PFE) stock indicates investors have turned bearish, but the company's upgraded guidance suggests otherwise. Over 25,000 in-the-money put contracts have traded, with a strike price of $26.00, 17 days from today. However, the breakeven point is only 7 cents lower than the current trading price, indicating strong hedging by investors who feel PFE will fall to below that point. Short sellers hope the stock will rise to $26.00 or higher by Sept. 12.

Pfizer Inc. (PFE) stock has seen unusual put option activity in recent trading, with over 25,000 in-the-money (ITM) put contracts trading for the expiry period ending September 12, 2025 [1]. This activity has raised questions about whether investors have turned bearish on the company. However, the company's upgraded guidance suggests otherwise.

The put contracts have a strike price of $26.00, which is $1.08 higher than the closing price of $24.92 on Tuesday, August 26. This makes them ITM. The premium at the midpoint is $1.15, giving a breakeven point of $26.00-$1.15, or $24.85. This is only 7 cents lower than the trading price, indicating strong hedging by investors who feel PFE will fall to below that point. Short sellers of these puts are hoping/betting that PFE will rise to $26.00 or higher by September 12.

Investors may be using these puts to trade PFE in an obvious range that it has been having. The stock has traded between $22 or $23 and $26.00 in the past 4 or 5 months. The long put buyers may think that PFE is due for a tumble here, while the short sellers of the puts may think that it won't happen.

The company's recent earnings report was very bullish, and management raised its guidance for revenue and earnings. They now expect to see earnings per share (EPS) to come in between $2.90 and $3.10. That puts the stock on a very cheap forward multiple of just 8.3x at the midpoint (i.e., $24.92/$3.00 = 8.3).

PFE stock is still deeply undervalued. Using its average dividend yield of 4.65%, (it's 6.90% today, i.e., $1.72 div. per share/$24.92), PFE could be worth $36.99, or +48% more: $1.72 / 0.0465 = $36.99, and $36.99 / $24.92 = 1.4843 -1 = +48.43% upside.

The initiation of a patent infringement lawsuit by Enanta Pharmaceuticals against Pfizer adds another layer of complexity to PFE's outlook [2]. However, this legal challenge does not fundamentally alter the company's biggest catalysts, such as pipeline results and new product launches.

Investors should be careful about following these trades, however, given the risks associated with trading ITM put options. Investors can study these risks by reviewing the Barchart Options Education Center tabs.

References:
[1] https://finance.yahoo.com/news/unusual-put-option-activity-pfizer-173002527.html
[2] https://www.ainvest.com/news/pfizer-faces-patent-infringement-lawsuit-covid-19-antiviral-paxlovid-2508/