Drug Stock Higher as EpiPen Rival Nabs FDA Nod

INSY short sellers have been in covering mode

Managing Editor
Aug 30, 2018 at 9:52 AM
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Shares of Insys Therapeutics Inc (NASDAQ:INSY) are up 12.1% at $8.93 in early trading, after the Food and Drug Administration (FDA) granted the company's epinephrine nasal spray for anaphylaxis "Fast Track" status. The spray is designed to work similar to Mylan's (MYL) EpiPen, which is on the FDA's shortage list, but faster and without needles.

After selling off sharply from its early January 12-month peak of $14.00, INSY has been moving sideways between $5.75 and $8.80 since early February. Today's pop has the drug stock breaking out above the higher end of this recent range, on on track to close north of its 200-day moving average for the first time since Jan. 29.

A continued round of short covering could create bigger tailwinds for INSY. Short interest plunged 7% during the past two reporting periods, and now represents a healthy 34.6% of the stock's total available float. At the INSY's average daily trading volume, it would take almost 19 days for shorts to cover their remaining bearish bets.

Options traders, meanwhile, have been buying to open calls over puts at a quicker-than-usual clip in recent weeks -- though some of this may be the result of shorts hedging against any upside risk. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), INSY's top-heavy 10-day call/put volume ratio of 50.85 ranks in the 99th annual percentile.

Regardless of the reason, now appears to be an attractive time for traders to buy premium on near-term INSY options. The stock's Schaeffer's Volatility Index (SVI) of 64% ranks in the 7th annual percentile, meaning short-term options are pricing in lower-than-usual volatility expectations at the moment.

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