Short-term SAGE options are currently pricing in low volatility expectations
Shares of SAGE Therapeutics Inc (NASDAQ:SAGE) gapped 70% higher on Dec. 7, after the biotech reported well-received data for one of its depression drugs. The shares have yet to slow down, topping out at a record high of $183.05 earlier. Though SAGE stock was trading down 0.4% at $179.85 at last check, if history is any guide, the drug name could still be headed deeper into uncharted territory.
Specifically, SAGE's Schaeffer's Volatility Index (SVI) of 53% ranks in the 4th percentile of its annual range, indicating short-term options are attractively priced at current levels. Since 2008, there have been two other times the stock has been trading near 52-week highs while also sporting a low-ranked SVI, according to data from Schaeffer's Senior Quantitative Analyst Rocky White.
In the wake of those signals, the shares went on to average a one-month gain of 7.1%, and were positive both times. Another move of this magnitude would put the equity north of $194, based on the stock's current price, a new record high.
And while most analyst are already bullish on SAGE Therapeutics stock -- all 12 maintain a "buy" or better rating, and the average 12-month price target is docked above $200 -- the equity could certainly stand to benefit from a continued round of short covering. Although short interest fell 22.31% in the most recent reporting period, 3.12 million SAGE shares are still sold short. This accounts for 9.23% of the security's available float, or 5.4 times the average daily pace of trading.