Option Traders On the Right Side of Epizyme, Inc. (EPZM) Rally

Epizyme Inc (NASDAQ:EPZM) is up 31% today, following some well-received drug data

Jun 22, 2015 at 11:30 AM
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Epizyme Inc (NASDAQ:EPZM) is among the leading advancers on the Nasdaq -- up 31% at $27.32, and lingering near levels not seen since early November. In addition to the day's bullish broad-market backdrop, the stock is getting a boost from some upbeat drug data, as well. Specifically, the company said early stage results from its lymphatic cancer drug, tazemetostat, showed "meaningful activity" in participants. The positive price action is most likely being cheered in the options pits, where call buying has been popular in recent months.

Drilling down, while volume has been relatively light on EPZM, activity has definitively been skewed toward the call side. Specifically, speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 12.67 calls for each put over the past 50 sessions. What's more, the ratio ranks in the 72nd percentile of its annual range.

Echoing this is EPZM's Schaeffer's put/call open interest ratio (SOIR) of 0.39, which sits lower than 78% of all similar readings taken in the past year. Simply stated, short-term speculators are more call-skewed than usual.

Outside of the options pits, traders have taken a more skeptical route. Short interest jumped 15.5% in the two latest reporting periods, and now accounts for nearly 17% of the stock's available float -- or 17.3 times the average daily trading volume. In light of this, it's possible some of the recent call buying, particularly at out-of-the-money (OOTM) strikes, could be a result of short sellers hedging against any upside. Today, call buyers have turned their attention to the OOTM July 30 strike -- either betting on or bracing against the shares toppling the round-number mark over the next four weeks.

Heading into today's session, Epizyme Inc (NASDAQ:EPZM) was up 10% year-to-date. Thanks to today's pop, the shares are now sporting a 45% 2015 lead -- and are easily on pace to close north of their 200-day moving average for just the second time since last October.

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