SAGE Therapeutics Options Traders Don't Buy Depression Drug Breakout

SAGE stock has more than doubled in value over the past month

Dec 7, 2017 at 10:18 AM
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Shares of SAGE Therapeutics Inc (NASDAQ:SAGE) shot to a record high of $169.58 out of the gate, and were last seen trading up 68.6% at $154.77. For the second time in a month, the biotech reported successful trial results for one of its depression drugs, this time announcing that 64% of patients using its major depressive disorder (MDD) treatment entered remission 15 days in. On Nov. 9, SAGE Therapeutics gave positive data for its postpartum depression drug, Brexanolone.

In reaction, Canaccord Genuity raised its price target on the stock to $191 from $140, calling "the long-rage prospects for SAGE positive." More bullish brokerage notes are sure to come down the pike, considering the average 12-month price target for the security stands at $126.36 -- a nearly 19% discount to current trading levels.

SAGE options traders, meanwhile, are bracing for a quick retreat. Amid a surge in early options volume -- 3,010 contracts have traded, six times what's typically seen at this point in the day -- traders appear to be buying to open the December 145 put. If this is the case, they expect the shares to fall back below $145 by expiration at next Friday's close.

Given the stock's brow-raising 143.2% one-month gain, though, it's possible shareholders are initiating options hedges to guard paper profits against any downside risk. Whatever the motive, it's not cheap to buy premium on short-term SAGE options at the moment. The stock's Schaeffer's Volatility Index (SVI) of 239% ranks in the 100th annual percentile, meaning heightened volatility expectations are being priced in.

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