Cara Therapeutics Inc (CARA) Bull Gap Draws Options Traders

Cara Therapeutics Inc (NASDAQ:CARA) is up 20% today, although the catalyst is unclear

Jul 22, 2016 at 3:18 PM
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Cara Therapeutics Inc (NASDAQ:CARA) is flying high today, with some speculating the biotech stock is getting a lift from Cantor Fitzgerald's upbeat takeaway from a recent opioid panel. Specifically, the brokerage firm said the panel "continued to fuel our enthusiasm" for CARA's acute pain treatment, CR845 IV. However, others are attributing the bull gap to a round of short-covering. Regardless, CARA stock is up 20.4% at $6.02 -- and options volume is running at six times what's typically seen at this point in the day.

The uptick in options trading should be taken with a grain of salt, though, given the low absolute numbers. On average, CARA sees just 29 options traded -- versus the 155 that have crossed the tape so far today. More broadly speaking, the stock's August 7.50 call is home to peak open interest of 759 contracts, compared to more widely traded Valeant Pharmaceuticals Intl Inc (NYSE:VRX), for instance, whose top open interest position (the January 2017 27.50-strike call) is home to 51,487 contracts.

According to Trade-Alert, the majority of CARA's August 7.50 calls have been bought to open in recent months. Given the out-of-the-money status of these calls, though, a portion of the activity could be a result of short sellers hedging their bearish bets. Short interest on CARA surged 39% in the latest reporting period, and now accounts for a healthy 8% of the equity's available float. In fact, 1.8 million CARA shares are sold short -- a record high.

On the charts, the stock has been a long-term laggard, down 62% year-over-year. Plus, today's surge appears to be stalling out at Cara Therapeutics Inc's (NASDAQ:CARA) descending 120-day moving average. CARA has not settled a session north of this trendline since Jan. 5.

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