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.

 

*SPONSORED CONTENT*

How to collect 1 dividend check every day for LIFE

Did you know you could collect 1 dividend check every day the market is open? You could also do it starting with just $605! For me, I'm collecting 70 dividend checks every quarter…which averages around 1.1 dividend checks every business day. There's no trading behind this... no penny stocks or high-risk investments. All you do is buy and hold and you're set. There's no set up required either. If you start buying the dividend stocks I show you today... you could collect 1 dividend per day starting as early as this week. Click here for all the details.

*SPONSORED CONTENT*