How Conatus Pharmaceuticals Inc. (CNAT) Let Down Option Bulls

Conatus Pharmaceuticals Inc (CNAT) is sinking following drug trial results

Digital Content Group
Jan 9, 2015 at 8:33 AM
facebook X logo linkedin


Conatus Pharmaceuticals Inc (NASDAQ:CNAT) jumped 3.7% yesterday to close at $10.33, as optimism ran wild ahead of the company's trial results for its cirrhosis treatment, emricasan. In particular, calls crossed at six times the usual daily rate, and the stock's 30-day at-the-money implied volatility hit an annual high of 248% as expectations ramped up for a big move in the shares.

Short-term traders bought to open CNAT's January 2015 12.50-strike calls in the expectation of post-result upside. Specifically, these buyers gambled on the underlying ending atop $12.50 -- territory not explored since last March -- by next Friday's close, when the front-month options expire.

However, it looks like these bulls are in trouble, as traders bought the hype but are selling the news. This morning, CNAT is primed for a roughly 40% drop out of the gate, as the Street responds negatively to the data.

While this may disappoint yesterday's call buyers, there are plenty of short sellers celebrating. Nearly 13% of Conatus Pharmaceuticals Inc's (NASDAQ:CNAT) float is sold short, which would take a week to buy back, at average daily trading levels. In fact, given this high level of short interest, it's possible that some of yesterday's out-of-the-money call buyers may have been short sellers picking up pre-event hedges.

 

Unlock Weekend Profits with Chris Prybal's Favorite Strategy Up +487.5% in 2024

With the markets going left, right, and sideways, you need to have a plan now more than ever. 

Expert Trader Chris Prybal is no stranger to volatility, and has mastered finding big stock rallies while other traders aren't looking over the weekend. Rallies that produced gains like +207% on RTX calls, +236% on MARA calls, and +238% on NET calls.

A few simple moves on Sunday at 7pm could be the “Secret Sauce” your portfolio needs to not just stay afloat, but make unprecedented gains in this turbulent market.


Don’t sit on the sidelines, beat the market with Chris Prybal's strategy. Join him now!

 

 
 
 


 
 

Rainmaker Ads CGI