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Achillion Pharmaceuticals Says Farewell to Single Digits

ACHN investors have taken a shine to October 10-strike options

by 9/27/2012 2:28 PM
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Options traders have set their sights on Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN - 10.66) today, with both calls and puts heating up. In afternoon action, the drug maker has seen roughly 2,500 calls and 1,800 puts change hands, far surpassing its average intraday volume of around 1,600 calls and 600 puts.

Upon closer inspection, we find that the October 10 strike has been most popular on both sides of the options aisle, with around 1,900 calls and 1,600 puts traded. The bulk of the calls crossed at the ask price, suggesting they were bought, while most of the puts have traded at the bid price, pointing to seller-driven volume. Implied volatility on the call was last seen higher, and put volume has exceeded open interest, hinting at newly open positions.

By purchasing the calls to open, the buyers are expecting ACHN to extend its run north of $10 through the next few weeks. At last check, the volume-weighted average price of the calls is $0.88, meaning the buyers will profit if ACHN surmounts the $10.88 level (strike plus premium paid) by October options expiration.

In a somewhat similar vein, the October 10 put sellers are essentially betting on support in the round-number $10 region. As long as ACHN remains north of $10 through the puts' lifetime, the sellers can pocket the initial premium received, which represents the maximum reward.

However, today's optimism in the options pits marks a change of pace for ACHN. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.26 registers in the 72nd percentile of its annual range. In other words, option buyers have initiated bearish bets over bullish at a quicker-than-usual step during the past two weeks.

That skepticism is also prevalent among short sellers. Short interest edged 0.6% higher during the most recent reporting period, and now represents almost 21% of ACHN's total available float. What's more, at the security's average pace of trading, it would take more than two weeks to repurchase all of these pessimistic positions.

The aforementioned bears are likely shaking in their boots today, with the shares of ACHN last seen 12.3% higher in the $10.66 neighborhood -- territory the security hasn't explored since early April. Bolstering the equity was news that an early trial of ACHN's experimental hepatitis C treatment achieved positive proof-of-concept results, meaning the firm can now move forward with clinical trials of ACH-3102.

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