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Option Bears Blitz Mallinckrodt PLC (MNK) After Scathing Citron Accusations

Mallinckrodt PLC (NYSE:MNK) is sinking today, after Citron Research accused its CEO Mark Trudeau of "committing securities fraud"

Nov 16, 2016 at 2:29 PM
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Put players are pummeling Mallinckrodt PLC (NYSE:MNK), as the healthcare stock sinks following yet another a scathing report from Citron Research. The noted short seller accused Mallinckrodt CEO Mark Trudeau of "committing securities fraud," noting the firm's Achtar treatment is "the most expensive drug per use in all of Medicare despite the lack of clinical data." At last check, MNK stock was down 8.2% at $62.24 -- the leading laggard on the S&P 500 Index (SPX) -- and put options were trading at six times the average intraday pace.

Specifically, 5,241 MNK put options have changed hands, compared to 1,140 call options. This is almost four times the equity's average daily options volume of 1,765 contracts. Most active is MNK's November 60 put, where it looks as if new positions are being purchased. If this is the case, the goal is for the stock to settle south of $60 at this Friday's close, when front-month options expire.

More broadly speaking, MNK options traders have shown a preference for long puts over calls in recent months, albeit amid relatively low absolute volume. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day put/call volume ratio of 4.12 ranks just 5 percentage points from a 52-week peak. In other words, puts have been bought to open over calls at a near-annual-high clip.

Skepticism has been growing among short sellers, too. Although the stock is short-sale restricted today, short interest ballooned 28% in the two most recent reporting periods. However, MNK's bearish bandwagon is far from overcrowded, considering a low 5.9% of the stock's float is actually sold short. Plus, all 12 analysts covering the shares maintain a "buy" or "strong buy," leaving the door wide open for a round of downgrades, should the shares continue to swoon.

In fact, since hitting an annual high of $85.83 in late August, MNK stock is down 27.5%. Additionally, Mallinckrodt PLC's (NYSE:MNK) recent rally off its early November lows near $54 was quickly contained by its 50-day moving average. This trendline helped support the shares in late September, but appears to have now taken on a more resistant role.

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