TEVA is in the basement and it is spooky there

2600 looms large.  We discussed some trade ideas in our Gold Lab today and as much as I love some downside put spreads I can‘t help but think 2600 is soon.  As we roll into the close VIX could not hold the 10 handle and the  VIX futures could barely keep their tiny gains.  Maybe 2600 by Friday since rallying is really all we do.

What does not really rally is TEVA.  The once great generic drug maker is in such a tailspin that it has taken much of the market by surprise.  The last drug company that did this of real size was VRX and look at how that thing has languished.  The surprise in TEVA today was a massive put roll.  It appears the customer sold to close the TEVA Dec08 11.5 puts and bot to open more TEVA Jan19 2018 10 puts.  Usually an up volume roll means the cust is right and they want to keep the good times going.  Ratings downgrades and a skinny pipeline has TEVA going into the single digits per the analysts.  The basement is truly dark.

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It might be work looking into the OI tomorrow to see if the customer rolled but I think they did.  The trade does not make a bad diagonal put spread outright. Usually by the time the debt rating agencies get on the stick, it is the bottom.  Their recent calls on the USA and Brazil come to mind.

The trade

TEVA Dec08 11.5 puts over TEVA Jan19 2018 10 puts can be done premium neutral so the ratio works out buying more of the 10 puts than selling the 11.5s just in case the single digits do happen.  Serial put diagonals might not be bad here.  The road back for TEVA looks long.

Disclosure:  TEVA positions

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