Are Shorts Hedging Their Bets On Sunesis Pharmaceuticals, Inc. (SNSS)?

Sunesis Pharmaceuticals, Inc. (NASDAQ:SNSS) gapped higher on drug news, and option bulls are excited -- or are they?

Jun 12, 2015 at 11:44 AM
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Sunesis Pharmaceuticals, Inc. (NASDAQ:SNSS) gapped higher this morning, last seen up 8.7% at $2.76, after the company announced positive new data from its Phase 3 trial for leukemia drugs vosaroxin and cytarabine. As a result, traders are rushing to the option pits, where calls are crossing at 11 times the expected intraday pace. 

On a closer look, calls account for eight of SNSS' 10 most active options today, and the July 3 strike is seeing the most action. Apparently, traders are betting on gains above $3, because it looks like they're buying to open some of these contracts. SNSS has until the close on Friday, July 17, to top the strike, as that's when back-month options expire. 

For some time now, SNSS option traders have been decidedly call-focused. Looking at data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), more than 850 calls have been bought to open over the past 50 sessions, compared to just 52 puts. 

However, it's likely some of this activity is from short sellers hedging against an upside move from the shares. Currently, 9.2% of the stock's float is sold short, which would take almost two weeks to repurchase, at its typical trading volume. 

This scenario seems even more likely after looking at Sunesis Pharmaceuticals, Inc.'s (NASDAQ:SNSS) dreadful performance on the charts coming into today. Over the past 12 months, the shares have lost more than half their value, thanks mostly to a giant bear gap back in October. 


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