SAGE Therapeutics Stock Hot Ahead of Earnings

Call buyers have been flocking toward SAGE

Managing Editor
Feb 15, 2019 at 1:10 PM
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Up 0.8% at $159.30, at last check, drug name SAGE Therapeutics Inc (NASDAQ:SAGE) is scheduled to report fourth-quarter earnings before the market opens on Tuesday, Feb. 19. Below, we will take a look at how SAGE stock has been faring on the charts, and dive into what the options market is pricing in for the shares' post-earnings activity. 

SAGE stock has nearly doubled since its Dec. 24 low of $79.88.  Behind the stock's noteworthy early January bull gap was the successful late-state study of its postpartum depression drug, SAGE-217. What's more, the shares surged above the 20-day moving average, which acted as a ceiling of resistance in the fourth quarter.

Daily SAGE with 20MA

Looking toward SAGE's earnings history, the drug stock has closed higher the day after seven of its last eight earnings reports, including the last three in a row. Looking broader, the shares have averaged a 3% swing the day after reporting, regardless of direction. This time around, SAGE options are pricing in a higher-than-usual 4.9% swing for Tuesday's trading.

It appears options traders have been betting on more upside for SAGE. The stock's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), EXEL sits at 5.39, ranking in the 75th annual percentile. In other words, calls have been purchased over puts at a faster-than-usual pace in the past two weeks.

Some of that call buying -- particularly at out-of-the-money strikes -- could be attributable to shorts seeking an options hedge on outperforming SAGE. Short interest represents nearly 11% of the equity's total available float, and would take more than seven sessions to buy back, at the stock's average pace of trading. That's plenty of fuel for a short squeeze to drive SAGE even higher, should the company's earnings impress.

Analysts also seem to be celebrating the stock's impressive turnaround. As of last night's close, 12 of 13 covering brokerages sport a "buy" or "strong buy" recommendation. Comparatively, SAGE's average 12-month price target of $200.47 comes at a more than 20% premium to current levels.

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