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Monday, July 15, 2013

Is TEVA Finally Set to Rise?

eSignal chart w/custom indicators
LiveVolPro Chart
Teva Pharmaceutical Industries Ltd (ADR) or TEVA's ADR price has been in a long-term bearish trend.  After hitting 64.43 on March 22, 2010, TEVA's ADR price fell to 35.26 on September 23, 2011 and has basically moved sideways since then.  In light of soaring stock price of ACT--another pharmaceutical company that sells generic drugs, and even the sideways move of the Israeli stock market, TEVA's ADR has drastically underperformed.

Most recent trend points to a scenario where TEVA's ADR price is looking to break out.  Right now, it is testing it's trend line resistance.  Furthermore, volatility had fallen near to its low ranges, indicating that time is right for any fundamental news to be able to push the ADR with greater ease.

For example, on June 24, 2013, TEVA launched generic version of Viagra (sildenafil) in countries across Europe.  Furthermore, earnings are expected to be announced on August 1, 2013.  Perhaps, earnings report and conference call will shed some more light on  whether the new CEO and management team (who took over in May 2012) has taken substantive steps to improve the long-term business outlook of the company during their first year at the helm.

LiveVolPro screen capture
In terms of options activity, 10,000 September 42.5 calls were bought today for average price of 0.325.  Time & Sales data (provided by LiveVolPro) does not always show if the options were bought or sold.  However, considering that implied volatility of the Sep 42.5 calls rose today, we can conclude that the 10,000 contracts were bought.

September implied volatility of 19.5 still look reasonable given that price fluctuation of TEVA shares have averaged 20 vol over the past few months.

Volatility:  Consider going long Sep 20 straddle & scalp gamma.
Directional: Consider going long Sep 40 or Sep 42.5 calls or the Sep 40/42.5 call spread.

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