The equity just pulled back from record highs
Biopharmaceutical concern The Medicines Company (NYSE:MDCO) will report earnings on Wednesday, Oct. 30. MDCO shares have quietly rallied nearly 200% in 2019 so far, and the stock's recent pullback could be an opportune time to jump in on the next leg higher, if history is any indicator.
The Medicines Company stock touched an all-time high of $58.48 on Oct. 22, taking out its former April 2017 peak of $55.95. Since then, however, MDCO shares have pulled back to within striking distance of their 30-day moving average. Over the past three years, similar dips to this trendline have proven to be buying opportunities for bulls.
Specifically, there have been six similar retreats to the 30-day, after which MDCO went on to average a three-week gain of 8.54%, and was higher all but once, per data from Schaeffer's Senior Quantitative Analyst Rocky White. From the security's current perch of $57.40, another 8.54% pop would put MDCO around $62.30 -- in new-high territory.
It's also worth noting that The Medicines Company stock has moved higher the session after all of the firm's earnings reports so far in 2019. Over the past eight quarters, MDCO has moved 2.2%, on average, the day after earnings, regardless of direction. This time around, the options market is pricing in a much bigger move of 15.1%, per at-the-money implied volatility data.
Considering the stock's ascent in 2019, it's not surprising that recent option buyers have been picking up long calls over puts at a rapid-fire rate. On the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio stands at 3.73 -- in the 75th percentile of its annual range, pointing to a healthier-than-usual appetite for bullish bets over bearish during the past two weeks.
However, some of the recent call buying -- particularly at out-of-the-money strikes -- could be attributable to short sellers seeking an options hedge. Short interest on MDCO rose 6.5% during the past two reporting periods, and now accounts for nearly one-third of the equity's total available float. At the security's average pace of trading, it would take shorts nearly 12 sessions to buy back their bearish bets -- plenty of fuel for a short squeeze, should The Medicines Company once again exceed earnings expectations.