Matrixx Initiatives plummets to 11-year low on SEC inquiry

Posted Jun 23rd 2009 1:00PM by Elizabeth Harrow
Filed under: Major Movement, Bad News, Options

Matrixx Initiatives (NASDAQ: MTXX), maker of the allegedly scent-stealing Zicam nasal swabs, tumbled to a new annual low this morning on news that the Securities and Exchange Commission (SEC) is launching an informal inquiry. The SEC is requesting documents and other information regarding the warning letter issued to Matrixx by the U.S. Food and Drug Administration.

Last week, the FDA told consumers to stop using certain nasally administered Zicam products after the agency received more than 130 complaints from users who lost their sense of smell. Matrixx has defended its homeopathic, over-the-counter offerings, calling the safety concerns "erroneous," but the firm settled hundreds of lawsuits in 2006 with consumers making the same allegations.

The shares plummeted more than 71% last week as a result, and the stock's free-fall is still going strong. At last check, MTXX was off more than 14%, up modestly from its intraday nadir of $4.39 -- which marked the equity's lowest price since January 1998.

Option traders are responding to the MTXX's meltdown by loading up on put options. The July 5 strike has been particularly popular; open interest here rose overnight by 73 contracts, and now totals 2,462 in-the-money puts. Another 581 contracts crossed the tape within the first half of today's session, with a fair portion of the volume trading at or near the ask price -- suggesting the contracts are being bought to open.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.

Tags: FDA, Food and Drug Administration, FoodAndDrugAdministration, inthenews, Matrixx Initiatives, MatrixxInitiatives, MTXX, options, SEC, Securities and Exchange Commission, SecuritiesAndExchangeCommission, Zicam