PTC Therapeutics, Inc. (PTCT) Options Sizzle Amid FDA-Induced Lows

PTC Therapeutics, Inc. (PTCT) is fresh off record lows due to a rejection by the FDA

Feb 23, 2016 at 2:58 PM
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It's been a brutal day for PTC Therapeutics, Inc. (NASDAQ:PTCT). The shares are down over 58.3% at $11.79, after the U.S. Food and Drug Administration (FDA) said the drugmaker's application for muscle disorder treatment translarna does not merit a review. In fact, the stock is the worst-performing Nasdaq component this afternoon, on a percentage basis. At the same time, options volume has exploded on PTCT.

Diving right in, nearly 6,700 options have traded on the pharmaceutical stock -- 16 times what's normally seen at this point in the day. Among the most active strikes are the March 12.50 and 15 puts, and traders may be buying to open these options in the hopes that PTCT will continue to fall through front-month expiration, at the close on Friday, March 18.

This represents a break from the norm. During the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 84.20 PTCT calls for every put -- a ratio that outstrips all but 2% of comparable readings from the last 12 months. Likewise, the stock's Schaeffer's put/call open interest ratio (SOIR) rests at an annual low of 0.47, with calls more than doubling puts among options with a shelf-life of three months or less.

Elsewhere, PTCT has been a popular target among short sellers -- though it's currently short-sale restricted. During the latest reporting period, short interest popped close to 19%, and now represents one-third of the stock's total float. At PTCT's usual trading volumes, it would take two weeks to cover these bearish bets. Given these high short interest levels, it's possible some of the aforementioned call buying was at the hands of short sellers seeking a hedge.

Underscoring that theory is PTCT's woeful performance on the charts. Earlier, the stock hit a record low of $11.56, and year-over-year, it's plunged roughly 84%. More bad news could be on the way, too, as a number of law firms announced investigations into PTC Therapeutics, Inc. (NASDAQ:PTC) amid allegations of fraud.

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