New Deal Has Kite Pharma, Inc. (KITE) Flying -- and Shorts on Edge

Were Kite Pharma Inc (KITE) short sellers hedging with long calls?

Jan 5, 2015 at 1:08 PM
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It's been a big day for pharmaceutical names, and sector component Kite Pharma Inc (NASDAQ:KITE) is no exception. The stock has rallied 8.3% to trade at $65.65 -- and earlier hit a record high of $66.67 -- following news of a freshly inked partnership with Amgen, Inc. (NASDAQ:AMGN). On the sentiment front, today's bullish gap is likely being met with mixed reactions in and out of the options arena.

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, KITE option traders have shown an affinity for bullish bets over bearish in recent weeks. Specifically, speculators have bought to open 3.28 calls for every put over the past 10 sessions.

Elsewhere on the Street, though, short interest surged 58.4% in the past two reporting periods, and now accounts for nearly 10% of KITE's available float. Given this lofty level of shorted shares, it's possible that some of the recent call buying -- particularly at out-of-the-money strikes -- is a result of short sellers initiating hedges on their bearish bets.

Similar to its sector peers, the biotech stock has performed well since going public in late June, and has surged roughly 158%. As a result, however, Kite Pharma Inc's (NASDAQ:KITE) 14-day Relative Strength Index (RSI) is docked at 77 -- in overbought territory -- suggesting a near-term pullback may be in the cards.

 

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