Does This ARIAD Pharmaceuticals, Inc. (ARIA) Rally Have Legs?

Ariad Pharmaceuticals, Inc. (ARIA) is just one of several biotechs rallying today

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Published on Mar 16, 2015 at 1:39 PM
Updated on Apr 20, 2015 at 5:32 PM

Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) is following a number of sector peers higher this afternoon, in what's turning out to be a big day for biotechs. At last check, the shares were up 2% at $8.65, bringing their year-to-date lead close to 26%. In fact, the equity is nearing its annual high of $8.72, touched last April. Meanwhile, in options land, activity is ramping up.

Diving right in, calls are crossing at twice the usual intraday rate, and four times the pace of puts. Also, ARIA's 30-day at-the-money implied volatility has spiked 3.9% to 60.1%, hinting at elevated demand for short-term strikes. Along those lines, traders are buying to open the now in-the-money March 8.50 call, expecting the shares to extend their lead north of $8.50 -- and possibly assail new heights -- by Friday's close, when front-month options expire.

However, short sellers are less convinced -- and there are plenty of them. Nearly 31% of Ariad Pharmaceuticals, Inc.'s (NASDAQ:ARIA) float is sold short, which represents more than a week's worth of pent-up buying activity, at typical daily trading levels. In other words, if the stock continues to run higher -- potentially en route to a fresh 12-month peak -- a short-covering rally could ensue.


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