Biogen Option Bulls Have History On Their Side

Biogen calls have been active ahead of earnings

Managing Editor
Oct 23, 2017 at 4:36 PM
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Drug company Biogen Inc (NASDAQ:BIIB) will report earnings tomorrow morning. Today, the stock closed almost 3% lower at $328.11, after the firm changed its existing collaboration with Eisai to develop and commercialize investigational Alzheimer's disease treatments, resulting in a downgrade from Citigroup. Below, we'll take a look at BIIB stock and how options traders are playing the shares ahead of earnings. 

Citigroup cut its rating on the stock to "neutral" from "buy," citing the eliminated milestone payments under the new Eisai deal. Ahead of earnings, however, option traders showed bullish tendencies towards BIIB. Data from the  International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the drug stock sporting a 10-day call/put volume ratio of 2.23, ranking in the 76th percentile of its annual range. This suggests that calls were heavily preferred over puts before during the past two weeks.

Today, BIIB options traded at twice the normal daily rate, with calls exceeding puts -- 7,100 vs. 6,100 contracts traded. It appears some speculators bought to open weekly 10/27 345- and 350-strike calls, to bet on Biogen shares rocketing higher -- and topping last week's two-year peak of $348.84 -- by Friday's close.

Biogen bulls have history on their side, though. BIIB stock has moved higher after seven of the company's last eight earnings reports. Regardless of direction, the shares have averaged a one-day post-earnings move of 4%. This time around, the options market is pricing in a bigger-than-usual swing of 6.7%, per the equity's at-the-money implied volatility data.


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