Aldeyra Therapeutics Stock Surge Crushes Shorts

ALDX shorts have been covering in recent reporting periods

Sep 26, 2018 at 10:16 AM
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Aldeyra Therapeutics Inc (NASDAQ:ALDX) reported positive mid-stage data for its topical dry eye disease treatment, ocular reproxalap, and plans to move ahead with a late-stage trial next year. A positive brokerage note from Cantor Fitzgerald is only stoking the bullish flames, with ALDX stock up 42.2% at $14.07 -- fresh off a record high of $14.67, and on track for its best day in over a year.

Cantor Fitzgerald reiterated its "overweight" rating on Aldeyra Therapeutics, and raised its price target to $30 from $23 -- more than double current trading levels. The brokerage firm also raised its expectations for the drug's success to 60% from 35%, and said it increases the likelihood of M&A activity.

Today's surge has sparked a rush of activity in ALDX's typically quiet options pits. More than 2,100 calls and 490 puts have changed hands so far -- 43 times what's typically seen at this point. Speculators may be liquidating positions at the October 12.50 call, where it looks like most of the action could be the result of selling.

Given how deep out of the money these calls were coming into today's trading, it's possible shorts were using them to hedge against any upside risk. Despite being on sharp decline in recent reporting periods, nearly 9% of ALDX stock's is still sold short. It would take bears almost six days to cover the remaining shares, at the average pace of trading -- suggesting some of today's upside could be due to a short squeeze.


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