Biotech Stock Flashing "Buy" Signal

Options traders have been extremely call-heavy toward ARRY

by Patrick Martin

Published on Oct 9, 2018 at 2:26 PM
Updated on Oct 9, 2018 at 2:42 PM

Last Friday, Array Biopharma Inc (NASDAQ:ARRY) gapped lower for its worst day since July 27, but there is a silver lining. That is, the pullback puts ARRY near a historically bullish trendline and key level on the charts.

ARRY is now within one standard deviation of its 320-day moving average, after a lengthy stretch above this trendline. In the last two years, there have been two other signals of this kind, after which the shares were up an average of 14.47% a month after, per data from Schaeffer's Senior Quantitative Analyst Rocky White. At last check, ARRY was down 0.4% at $13.62, so a similar rebound would have the equity filling its bear gap from last Friday.

Daily Stock Chart ARRY

Array Biopharma stock nabbed a record high of $20.21 on June 21, but has given back 32% since. It is holding on to a 6.4% lead in 2018 and 10.7% gain year-over-year, and analysts remain optimistic. All seven of the brokerages covering the biotech name rate it a "strong buy." Further, the stock's consensus 12-month price target sits all the way up at $24.63, an 80% premium to its current perch. 

Meanwhile, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), more than 2,100 calls have been bought to open, compared to just 81 puts. The resultant call/put volume ratio of 25.94 ranks in the 71st annual percentile, meaning the rate of call buying relative to put buying has been quicker than usual.

Echoing this is the Schaeffer's put/call open interest ratio (SOIR) of 0.16, which ranks in the 4th percentile of its 12-month range. In other words, short-term speculators are more call-heavy than usual toward the stock.

Now may be an attractive time for near-term traders to hop onto ARRY with options. This is per the security's Schaeffer's Volatility Index (SVI) of 49%, which sits in the 18th percentile of its annual range. In other words, muted volatility expectations are being priced into short-term contracts. 



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