According to Hoovers, Savient Pharmaceuticals (SVNT: sentiment, chart, options) is a biopharmaceutical company that is focused on 2 conditions: involuntary weight loss and gout. Its sole marketed product, Oxandrin, is a synthetic derivative of testosterone used to treat involuntary weight loss caused by trauma, surgery, or disease (mainly HIV). The company also distributes the generic form of the drug, known as oxandrolone, through a partnership with Watson Pharmaceuticals. Savient's leading drug candidate in development is a treatment for gout called Puricase, which has received "orphan drug" status from the Food & Drug Administration.
Technical Strength
The shares of Savient have been locked in an uptrend from their March lows, creating a series of higher lows and higher highs as it marches higher. Of course, this is part of a longer-term uptrend for the equity. The stock has risen since November 2007, gaining more than 86%. What's more, the security has rallied more than 13% since the start of 2008, easily outperforming the S&P 500 Index (SPX), which has lost more than 9% during the same time frame.
A Sentiment Shift among Option Players
Option players may finally be ready to jump on the security's bandwagon as call open interest jumped on Friday. The International Securities Exchange reported that 12,285 calls were purchased (to open) on Friday compared to only 10 puts. It appears the bulk of this action was at the stock's July 22.50 call, which had open interest increase by nearly 12,000 contracts. Open interest for this in-the-money option now stands at 13,564 contracts.
However, puts are still the option of choice among investors. Peak put open interest in the July series also rests at the 22.50 strike with more than 26,700 contracts. This hefty accumulation of bearish bets would seem to imply that most investors expect the shares to decline during the near term.
What's more, the Schaeffer's put/call open interest ratio for SVNT stands at 0.73, down slightly from its Friday reading of 0.78. However, the current ratio is still higher than three-quarters of the reading taken during the past year. In other words, options players have been more pessimistically aligned just 25% of the past 12 months.
Pessimistic Short Sellers
Options speculators aren't the only ones who are skeptical. Short sellers have loaded up on the bearish bets in an attempt to call a top to the stock's rally. As of the latest reporting period, more than 16.7 million shares had been sold short, accounting for 31% of the company's total float. In fact, this build up of pessimistic position is 6.8 times the stock's average daily trading volume. A continued rally in the shares could squeeze these bears into buying back their pessimistic positions in an effort of stem their losses.
To read more of my and my colleagues' thoughts on the market, please visit our Schaeffer's Daily Market Blog section throughout the trading day.
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