FDA Ruling Could Be Great News For BioMarin Pharmaceutical Options Traders

Call buying had been very popular on the biotech

May 25, 2018 at 9:55 AM
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Biotech stock BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) is trading up 3.9% this morning at $91.74, after the Food and Drug Administration (FDA) approved its drug Palynziq for the treatment of phenylketonuria, a rare genetic disorder. A meaningful move above the $90 level would be big for BMRN, considering this area has acted as a stiff ceiling in recent weeks, and sits just above the year-to-date breakeven point. Options traders are hoping the breakout continues, too, as out-of-the-money calls had been popular in recent weeks.

Overall, 1,559 BioMarin calls were bought to open during the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), compared to just 68 puts. The most popular contract during that time, based on increases in open interest, was the June 95 call, where data shows mostly buy-to-open activity. The June 90 call saw notable buying activity, as well.

Looking back, BMRN has not been the best target for premium buyers, since its Schaeffer's Volatility Scorecard (SVS) is just 29 out of a possible 100. This show it's tended to make smaller-than-expected moves compared to what the options market has priced in over the past year.

Plus, some of this recent call activity could be from attributed to short sellers, who control almost 7% of the float. Specifically, these bears could have been buying the out-of-the-money calls to hedge against a sharp upside move from the biotech.

Analysts, on the other hand, are quite bullish. Eighteen of the 20 in coverage already had "buy" or "strong buy" ratings on BioMarin Pharmaceutical stock, and at least five price-target increases have come through since the FDA announcement. Even the lowest of these new price targets ($98 at RBC) represents a significant premium to the equity's current price, while the highest was $146 from Leerink -- calling for upside of almost 60%.

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