Bears Busy as Drug Data Pressures Isis Pharmaceuticals, Inc. (ISIS)

ISIS Pharmaceuticals, Inc. (NASDAQ:ISIS) is down 6.6% to trade at $64.12, following news that its experimental type 2 diabetes drug -- despite successfully reducing the body weight and blood sugar of patients -- didn't work as quickly as expected during a mid-stage study. Options traders have responded by placing bearish bets, with puts running at 11 times the expected intraday rate.

Digging deeper, it appears contracts are being bought to open at the now at-the-money February 64 put. These traders expect ISIS to extend its downward momentum -- and breach $64 -- by the close on Friday, Feb. 20, when front-month options expire. With this morning's sell-off, delta on the contract has spiked to negative 0.45 -- from negative 0.28 at Monday's close -- suggesting a 45% chance the option will be in the money at expiration.

Put buying has been in vogue in recent weeks, according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, ISIS' 10-day put/call volume ratio across these exchanges is 1.97 -- higher than 92% of comparable readings from the previous 52 weeks.

Short sellers are also getting in on the action. Short interest levels jumped 19.4% during the last two reporting periods, and now nearly 15% of ISIS' float is sold short.

Despite today's steep retreat, ISIS Pharmaceuticals, Inc. (NASDAQ:ISIS) remains a long-term technical outperformer. The shares are up 28.5% year- over-year, and earlier found a foothold atop their rising 50-day moving average, at $62.62.