Taking the Temperature of 3 Ebola-Related Stocks

When news of the first confirmed domestic case of Ebola hit the headlines last fall, markets sold off in mayhem. Various drugmakers, however, were able to capitalize off the fears, including Tekmira Pharmaceuticals Corporation (NASDAQ:TKMR), BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX), and NewLink Genetics Corp (NASDAQ:NLNK). In fact, on Oct. 1 -- when the aforementioned news broke -- these stocks tacked on respective single-session gains of 18.2%, 3.8%, and 7.1%.

Although Ebola hit the backburner for a short time amid earnings season and crude oil's crash, suspected diagnoses from overseas -- and Johnson & Johnson's (NYSE:JNJ) announcement yesterday that it has begun human testing of its vaccine for the virus -- have brought it back to the forefront. As such, it appears to be an opportune time to revisit the names that were front and center on the newswires just three months ago.

Tekmira Pharmaceuticals Corporation

Despite its initial surge in early October, TKMR has run out of steam, and is down 40% from its Oct. 1 close at $24.99 to trade at $15.04. Assisting the stock in its trek lower has been its 50-day moving average, and despite a recent attempt to topple this trendline in the wake of a well-received update on its cancer drug, TKM-PLK1, the stock has not finished a session north of here since Oct. 17.

Option traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have kept the faith, though, and over the past 10 sessions, have bought to open 6.76 calls for every put. Echoing this is the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.29, which indicates call open interest more than triples put open interest among options set to expire in three months or less. There could be an ulterior motive to this recent glut of call buying, however, as more than 10% of the security's float is sold short.

BioCryst Pharmaceuticals, Inc.

BCRX has put in a much stronger showing than its sector peer, and has tacked on 19% since its Oct. 1 settlement at $10.15 to linger near $12.08. More recently, the stock has caught a lift from its 10-day moving average -- as well as news that its antiviral drug, BCX4430, was effective in fighting the Ebola virus in monkeys -- since mid-December.

Option players have been quick to pick up long calls on BCRX over the past two weeks, as evidenced by the stock's 10-day ISE/CBOE/PHLX call/put volume ratio of 15.19, which ranks in the 85th annual percentile. With more than one-fifth of the equity's available float sold short, though, a portion of this call buying may have been at the hands of short sellers hedging against any additional upside.

NewLink Genetics Corp

NLNK has by far been the best performer among the group. Although the stock has sold off sharply this week -- despite reports the company will resume testing its Ebola vaccine in Geneva -- it appears to have found a foothold atop its 20-day moving average, and is still up 65.6% from its Oct. 1 finish at $22.95 to trade at $38.00.

Should the equity resume its longer-term uptrend, an unwinding of the skepticism surrounding it could translate into tailwinds. At the ISE, CBOE, and PHLX, for example, NLNK's 10-day put/call volume ratio of 0.39 rests in the bearishly skewed 65th percentile of its annual range. Elsewhere, 27.3% of the stock's float is sold short, representing nearly three weeks' worth of pent-up buying demand, at average daily trading levels.