Licensing Deal Has Cara Therapeutics Stock Climbing The Nasdaq

The drug stock is heavily shorted

Managing Editor
May 23, 2018 at 10:20 AM
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Cara Therapeutics Inc (NASDAQ:CARA) is up 17.4% to trade at $13.62, one of the top gainers on the Nasdaq so far. Earlier this morning, the biotech company secured a licensing deal for its pruritus treatment for chronic kidney disease patients with European drug conglomerate Vifor Fresenius Medical Care Renal Pharma. The drug Korsuva will give Cara a $50 million upfront payment and $20 million stock investment, as well as up to $470 million in milestone payments, and will be licensed everywhere except the U.S, Japan, and South Korea. 

CARA stock is on track to post its best single-day gain since Aug. 4, and is now trading near the $14 level for the first time since mid-March -- attempting to fill a post-earnings bear gap. Prior to today's burst though, the shares had traded within a tight range between $11.50 and $13.00, with their 100- and 160-day moving averages keeping a tight lid on CARA. 

A short squeeze could give CARA even more room to run. Short interest is up 29% since the start of the year to 7.65 million shares sold short -- the most since mid-October. This represents a hefty 28% of the security's total available float, and nearly 18 days of pent-up buying power, at the stock's average trading volume. 

This skepticism is seen in the options pits, too, amid relatively light absolute volume. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day put/call volume ratio of 0.48 ranks in the elevated 91st percentile of its annual range. This shows that while calls are preferred on an absolute basis, puts have been bought to open at a much faster-than-usual clip during the past two weeks.

Today, options volume is running at a quick clip in early trading. At last check, 3,449 calls and 295 puts were on the tape -- more than four times the average daily volume of 871 contracts.

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