Are Higher Highs Ahead for bluebird bio, Inc. (BLUE)?

Both options traders and analysts are targeting all-time peaks for bluebird bio Inc (BLUE)

by Karee Venema

Published on Mar 5, 2015 at 2:00 PM
Updated on Apr 20, 2015 at 5:32 PM

Some big-time M&A news has brought biotechs into focus today, and drugmaker bluebird bio Inc (NASDAQ:BLUE) is just one of the names benefiting from the sector-related tailwinds. At last check, the stock was up 9.7% at $109.77, after earlier topping out at an all-time peak of $109.99. The positive price action has sparked a rush of call activity in BLUE's options pits, with the contracts crossing the tape at more than five times what's typically seen at this point in the day. Plus, the stock's 30-day at-the-money implied volatility has surged 8.3% to 66.2% -- signaling elevated demand for short-term options.

In fact, eight of BLUE's 10 most active options expire in the front-month series, with the equity's March 110 call receiving notable attention. By all accounts, new positions are being purchased here, as traders roll the dice on a move to fresh record highs by the close on Friday, March 20 -- when the series expires. Amid today's surge, delta on the call has jumped to 0.50 from 0.21 at last night's close, indicating an increased probability the option will be in the money at expiration.

From a wider sentiment perspective, speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 3.19 BLUE calls for each put over the past 10 sessions. What's more, the stock's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) is currently docked at 0.42. In other words, near-the-money call open interest more than doubles put open interest in the March-dated series.

This optimism is echoed outside of the options pits, as well, which isn't too surprising considering shares of bluebird bio Inc (NASDAQ:BLUE) have more than quadrupled over the past 52 weeks. For starters, all seven analysts covering the shares deem them worthy of a "strong buy" recommendation. Additionally, the average 12-month price target of $124 stands at a 14% premium to current trading levels -- and, more importantly, in territory yet to be charted.

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