Buy Calls on This Red-Hot Biopharm

Endocyte stock has tended to reward premium buyers over the past year

Managing Editor
Jul 20, 2018 at 11:56 AM
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Shares of Endocyte, Inc. (NASDAQ:ECYT) are trading higher this afternoon, last seen up 0.1% at $17.12. This is just more of the same for ECYT, which bounced from reliable support at its 40-day moving average earlier this month to rally to a three-year high of $17.70 on Monday. The biopharmaceutical stock has picked up more than 300% year-to-date, but could be poised for even bigger gains, according to data from Schaeffer's Senior Quantitative Analyst Rocky White.

On top of holding near new highs, the equity is sporting unusually low volatility expectations for near-term options, based on its Schaeffer's Volatility Index (SVI) of 75.3% -- ranking in the low 3rd annual percentile. The last two times ECYT has traded within 2% of its 52-week high while sporting a low SVI, it's produced a positive one-month return each time, averaging a gain of 26.3%. As such, those looking to speculate on Endocyte may want to get on board now.

Daily Chart of ECYT with 40MA

And those wanting to bet on more upside with options are in luck, considering Endocyte stock has consistently rewarded premium buyers over the past year. This is based on its elevated Schaeffer's Volatility Scorecard (SVS) reading of 95 (out of a possible 100), which indicates the equity has tended to make outsized moves compared to what the options market was expecting.

Analyst attention has been overwhelmingly optimistic toward the outperforming drug stock. While all four firms covering ECYT sport "strong buy" recommendations, the stock's average 12-month price target of $19.67 is a 15% premium to current levels.

Short sellers, on the other hand, have been ramping up their exposure, with short interest more than doubling in the most recent reporting period. Not only is it impressive that ECYT has been able to rally in the face of such intense selling pressure, but it would take almost four days for these bears to cover their bets, at the average pace of trading. A short squeeze could create tailwinds for the equity.

 

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