2 Stocks Soaring on Positive Drug Data

Options traders have been call-heavy on Merck stock over the past two weeks

Managing Editor
Apr 9, 2018 at 9:52 AM
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Shares of pharmaceutical concerns Merck & Co., Inc. (NYSE:MRK) and Verastem Inc (NASDAQ:VSTM) are soaring in early trading, after reporting positive drug data. Below, we'll dig deeper into how MRK and VSTM stocks have been faring on the charts.

Keytruda Results Send MRK Higher

Merck stock is surging after the company's Keytruda drug met its main goal in a late-stage lung cancer trial. More specifically, the drug met its goal of helping previously untreated patients live longer. In response, MRK stock was up 2.7% at $54.81, at last check. 

From a longer-term perspective, shares of MRK have been struggling in 2018, touching a two-year low of $52.83 just last Tuesday. The security has shed close to 17% over the past six months, and has yet to recover from an October bear gap suffered after Merck pulled its European marketing application for Keytruda.

Despite its technical shortcomings, options traders have been more bullish than usual towards MRK of late. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows Merck stock with a 10-day call/put volume ratio of 5.32, ranking in the 90th percentile of its annual range. This suggests calls have been purchased over puts at a much faster-than-usual clip over the past two weeks.

Analyst sentiment has also remained optimistic. Of the 12 brokerage firms following MRK, eight currently sport "strong buy" recommendations.

VSTM Receives an FDA Lift

Verstem stock was last seen trading 12.5% higher at $3.33, after the Food & Drug Administration (FDA) accepted a new drug application (NDA) and granted "priority review" status for the biotech's chronic lymphocytic leukemia and lymphoma drug, duvelisib.

Still, VSTM stock has shed 36% over the past six months, and last week touched a 10-month low of $2.77. Nevertheless, analysts have remained bullish. VSTM currently sports an average 12-month price target of $12.67, which represents a whopping 277% premium to current levels, and all six brokerage firms following the stock carry "buy" or "strong buy" ratings.

Currently, the drug concern's Schaeffer's Volatility Index (SVI) sits at 155%. While that might seem high, this reading actually ranks in the low 8th percentile of its annual range, indicating Verastem's near-term options are pricing in relatively muted volatility expectations right now.

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