Option Bears Continue to Target Sarepta Therapeutics Inc (SRPT)

Option bears and short sellers anticipate more downside for Sarepta Therapeutics Inc (SRPT)

by Kirra Fedyszyn

Published on Mar 9, 2016 at 11:31 AM
Updated on Jun 24, 2020 at 10:16 AM

Biotech stock Sarepta Therapeutics Inc (NASDAQ:SRPT) has shed 4.2% to trade at $13.83 today, on news that the company is consolidating some of its facilities and laying off about 17% of its workforce. These moves come as the U.S. Food and Drug Administration (FDA) has yet to set a date for its delayed review of SRPT's muscle wasting disorder drug, leading bearish traders to pile on the stock as a big rebound looks less and less likely.

In early February, option traders were hopeful, picking up calls at an extreme pace in hopes of a SRPT bounce. But now the bears are back in control. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio arrives in the lofty 83rd percentile of its annual range.

As a result, total put open interest on SRPT now stands at a 52-week high of 45,112 contracts. And put volume on the biotech stock is heavier than usual today, too. SRPT puts are crossing the tape at 1.3 times their typical intraday pace -- though for lightly traded SRPT, that amounts to only about 1,400 contracts so far.

Option traders aren't the only ones expecting more downside for the shares, either. Short interest on SRPT climbed 27% during the two most recent reporting periods, and now accounts for nearly 32% of the equity's total available float. At SRPT's average daily volume, it would take nearly 10 sessions to cover all these bearish positions.

SRPT could be in more pain should analysts downwardly revise their ratings, as well. The stock currently boasts six "buy" or better ratings and six "holds," without a single "sell" on the books. And the average 12-month price target of $29 is more than double the security's current value. Future downgrades or price-target cuts could have Sarepta Therapeutics Inc (NASDAQ:SRPT) falling back toward its early February multi-year low of $10.20 sooner rather than later.

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