Does Sarepta Therapeutics Have 'Considerably More Upside'?

Barron's has extremely high hopes for Sarepta Therapeutics Inc (SRPT)

Sep 26, 2016 at 10:32 AM
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Sarepta Therapeutics Inc (NASDAQ:SRPT) is fresh off a week for the ages. Spurred by a big win at the Food and Drug Administration (FDA) and a round of upbeat brokerage notes, the stock doubled in value last week. It's more of the same this morning, with the biotech shares 3.2% higher at $59.69, following a bullish write-up in Barron's.

Specifically, the financial magazine said there could be "considerably more upside" in SRPT, based on the sector's valuation metrics and the company's potential as a takeover target. In fact, Barron's said that if upcoming trials prove successful, "Sarepta could become one of the most lucrative biotech plays in the coming years."

From the looks of it, though, options traders have either been betting on -- or bracing against -- a potential downturn in the shares. The stock's 50-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 1.58 -- just 12 percentage points from an annual peak. In other words, traders have been buying to open puts over calls at an accelerated clip in recent months.

Underscoring this put bias, SRPT's Schaeffer's put/call open interest ratio (SOIR) of 1.06 ranks in the 82nd annual percentile. This suggests open interest levels among options expiring in the next three months are very much tilted toward puts, on a relative basis.

As alluded to, some put buyers could actually be Sarepta shareholders bracing against a short-term downturn in the shares. After all, the biotech stock's 14-day Relative Strength Index (RSI) is approaching 80, putting it well into overbought territory.

Just how hot has Sarepta Therapeutics Inc (NASDAQ:SRPT) been lately? For one, the shares have more than tripled this quarter alone. For another, last Thursday, the stock touched a 14-year high of $61.60 -- and if "vanilla" option bears begin hitting the exits, a tailwind could lift SRPT to even greater heights.

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