Time to Consider this Biotech Penny Stock?

A round of short covering could have VIVUS stock moving higher

Mar 10, 2017 at 10:54 AM
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Biotech stock VIVUS, Inc. (NASDAQ:VVUS) popped 16.3% Thursday after blowing past estimates for fourth-quarter earnings and revenue. The shares made a decisive move above their 50-day moving average for the first time in nearly two months -- a historically bullish signal for stocks. VVUS stock is pulling back today, last seen off 5% at $1.15, but the stock could find a foothold at the $1.15 level, which has intermittently served as support and resistance over the past year, and also corresponds with the year-to-date breakeven level and 200-day moving average.

VVUS Stock Today

Looking at the data, VVUS is surrounded by pessimism. Specifically, 7.3% of the stock's total float is wrapped up in short interest. At the equity's typical pace of trading, it would take more than three weeks to buy back all these bearish positions. As such, the stock could benefit from a short-squeeze situation. 

Looking to the options pits, traders have largely been sitting on the sidelines of late, with total VVUS options open interest docked in the low 12th percentile of its annual range. The action has been heavily skewed to the call side in recent weeks. In fact, over the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 217 calls have been bought to open, and not a single put.

That's not to say speculators are bullish, though. Of the stock's top five open interest positions, four reside in the January 2018 series, while the other belongs to the deep-out-of-the-money March 2 call. It's possible some VIVUS, Inc. (NASDAQ:VVUS) short sellers have been picking up calls to hedge their bearish bets against another upside surprise.

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