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Orexigen Therapeutics, Inc. (OREX) short sellers could be feeling the heat
Orexigen Therapeutics, Inc. (NASDAQ:OREX) is the biggest gainer on the Nasdaq today, up 53% at $8.85. In fact, the equity notched a fresh four-year high of $9.37 in the wake of encouraging data on its obesity drug, Contrave, and OREX options are in demand as speculators roll the dice on even higher highs in the near term.
The equity's 30-day at-the-money implied volatility has skyrocketed 76.7% to 103.2%, reflecting the surging demand for short-term contracts. Overall options volume is running at 40 times the average intraday pace, with calls more than doubling puts.
Most popular is the March 9 call, which traders are buying to open to profit on gains north of $9 by the close on Friday, March 20, when front-month options expire. By purchasing the calls at a volume-weighted average price (VWAP) of $0.42, the buyers will make money if OREX rallies north of $9.42 (strike plus VWAP) by expiration. In light of the stock's ascent, delta on the call has soared to 0.51 from 0.076 at yesterday's close, implying a roughly 51% chance of the contract expiring in the money.
Today's appetite for OREX calls is just more of the same, though. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 19.16 stands higher than 76% of all other readings from the past year.
However, short interest accounts for more than one-third of OREX's total available float. In fact, it would take more than a month to buy back these bearish bets, at the stock's average daily trading volume. Against this backdrop, it's possible some of the recent call buying -- especially at out-of-the-money strikes -- could be attributable to bears looking for a hedge (and for good reason, considering today's rally).
On the charts, Orexigen Therapeutics, Inc. (NASDAQ:OREX) is now 48% higher year-to-date, and is on the verge of filling its February 2011 bear gap. What's more, the equity is on pace to end atop its 10-month and 20-month moving averages for just the second time since May.