Titan Pharmaceuticals, Inc. (TTNP) Bull Gap Sends Options Volume Soaring

Titan Pharmaceuticals, Inc. (NASDAQ:TTNP) is soaring today after an Food and Drug Administration (FDA) nod

May 27, 2016 at 10:24 AM
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It's been a big week for biotechs, and today is no exception. Drugmaker Titan Pharmaceuticals, Inc. (NASDAQ:TTNP), for example, has jumped 13% to $8.02, after the Food and Drug Administration (FDA) approved its Probuphine implant -- the first of its kind to treat opioid addiction -- after previously rejecting the device in 2013. The bull gap has TTNP stock trading at levels not seen since late September -- and option volume popping in early trading.

By the numbers, roughly 1,700 put options have changed hands thus far, compared to 2,600 call options -- more than 29 times what's typically seen at this point in the session and on pace for a new annual peak. Most active is TTNP's June 7.50 put, where new positions are being initiated. However, given the wide bid-ask skew, it's not easy to tell whether these options are being bought or sold.

More broadly speaking, options traders have shown a distinct preference for long calls over puts in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 5,110 calls have been bought to open over the past two weeks, compared to 623 puts.

Echoing this call-skewed preference is TTNP's Schaeffer's put/call open interest ratio (SOIR) of 0.25. What this shows is that call open interest quadruples put open interest among options expiring in three months or less.

In fact, TTNP's June 7.50 call is home to peak open interest among all the stock's options, with 2,786 contracts currently in residence. According to the major options exchanges, the majority of these positions were bought to open in recent weeks.

While "vanilla" call buyers are likely basking in the glow of today's rally, there may have been an ulterior motive to some of the buy-to-open activity at this recently out-of-the-money strike. Specifically, short interest surged 15.4% in the latest two-week reporting period, and now accounts for a healthy 8% of TTNP's float. In other words, a portion of the call buying could be a result of Titan Pharmaceuticals, Inc. (NASDAQ:TTNP) shorts hedging their bearish bets against any upside risk.

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