Shire PLC (SHPG) Takes a Drug-Induced Bounce

Shire PLC's (ADR) (NASDAQ:SHPG) ADHD treatment met its primary endpoints in a recent study

Jun 29, 2016 at 10:05 AM
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It's a big day for biotechs, and Shire PLC (ADR) (NASDAQ:SHPG) has started fast out of the gate, after the drugmaker's adult attention deficit hyperactivity disorder (ADHD) treatment met its main goals in a study. At last check, the stock is up 3.9% at $177.60, bringing a smile to shareholders. On the other hand, bearish options players may be in an unenviable position.

During the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 0.56 SHPG puts for every call. While call-focused on an absolute basis, this ratio ranks in the 82nd percentile of its annual range -- hinting at a preference for puts over calls, from a historical perspective.

This relative put bias is underscored by short-term open interest levels. SHPG's Schaeffer's put/call open interest ratio (SOIR) is 0.99 -- just 5 percentage points from an annual peak. In other words, open interest is more put-skewed than usual, among options expiring in the next three months.

Short interest has also been mounting on SHPG. In the latest two-week reporting period, these bearish bets soared 26.6%, and now 12.6% of the stock's float is sold short -- which would take nearly seven sessions to cover, at SHPG's average trading level. On the other hand, the brokerage community is holding out hope, with 11 analysts doling out "buy" or better opinions, compared to a pair of "holds" and not a single "sell" recommendation.

Technically speaking, Shire PLC's (NASDAQ:SHPG) performance appears to favor the bears -- today's upside move notwithstanding. On a year-over-year basis, the drug stock has surrendered more than one-quarter of its value.

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