Think Twice Before Buying This Biopharma

NKTR stock is also at risk for bearish brokerage notes

Aug 16, 2018 at 12:34 PM
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The shares of Nektar Therapeutics (NASDAQ:NKTR) shed more than 60% from their mid-March record peak of $111.36 to their late-June year-to-date low near $44.50. The drug stock has since pared some of these losses, but is now trading near a trendline with historically bearish implications -- suggesting it could be time to buy short-term puts on NKTR.

Specifically, NKTR stock topped out at a short-term peak of $61.88 last week -- site of its post-bear gap highs from early June -- bringing it within one standard deviation of its 80-day moving average. Over the past three years, there's been one other instance of the equity rallying up to this trendline after a lengthy stint below it -- resulting in a one-month loss of 45.96%, according to data from Schaeffer's Senior Quantitative Analyst Rocky White.

nktr stock daily chart aug 16

Based on that recent peak, another move of this magnitude to the downside would put Nektar Therapeutics stock near $38.44 for the first time since an early November bull gap. Today, NKTR shares are trading down 1.4% at $57.82.

While a sample size of one is as small as it gets, the underperforming stock is also at risk for a round of bearish brokerage notes -- which could create headwinds for Nektar Therapeutics. Of the nine analysts covering NKTR, seven maintain a "strong buy" recommendation, with not a single "sell" on the books. Plus, the average 12-month price target of $92.78 is a nearly 61% premium to current trading levels.

Given the advantages of trading stock options, those looking to bet bearishly on NKTR may want to consider buying puts. Schaeffer's Volatility Index (SVI) for the security is currently at 55%, which registers in the 12th percentile of its annual range -- indicating short-term options are attractively priced at the moment, from a volatility perspective.

What's more, NKTR's 30-day implied volatility skew of 2.6% ranks in the 11th annual percentile. What this means is that puts are pricing in lower volatility expectations than their call counterparts.

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