Options data suggests it could be a bad idea to sell premium on TNDM
The shares of insulin pump maker Tandem Diabetes Care Inc (NASDAQ:TNDM) yesterday notched their second highest close from the past year, adding 6.6% on the day thanks to news that the Food and Drug Administration (FDA) classified the company's t:slim X2 as the first device in the new Alternate Controller Enabled (ACE) category. TNDM is trying to add to those gains today, up 1.5% at $50, after Baird upped its price target to $55 from $46.
As such, the security is approaching its nearly two-year high of $52.55 from September, extending a late-2018 bounce off its 160-day moving average. In the process, the stock has moved past the $40-$44 range that had acted as a ceiling in recent months, and this level could potentially act as support going forward. However, options traders seem to be anticipating that technical resistance is afoot.
Just eye-balling the data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) would suggest TNDM speculators have been bullish, since call buying has outpaced put buying by a nearly 7-to-1 ratio in the past 10 days. But looking closer, there has also been notable call selling on Tandem Diabetes Care, including yesterday where it would seem traders sold to open the May 55 call. If so, they'd be expecting the equity to hold below this strike in the coming months.
Selling premium wouldn't seem like the wise approach at the moment, since the Schaeffer's Volatility Index (SVI) of 83% sits in the low 15th annual percentile, telling us that the options market is currently pricing in lower-than-normal volatility expectations for TNDM. Plus, the stock has shown a tendency to blow past options traders' volatility expectations during the past year, judging by its Schaeffer's Volatility Scorecard (SVS) of 99 -- not what you want to hear if you're selling to open options.