Akorn, Inc. (AKRX) Call Buyers Eye Round-Number Breakout

Akorn, Inc.'s (NASDAQ:AKRX) April 30 strike is popular among call players today

by Karee Venema

Published on Mar 22, 2016 at 2:22 PM
Updated on Jun 24, 2020 at 10:16 AM

Pharmaceutical stocks are having a big day, with Valeant Pharmaceuticals Intl Inc (NYSE:VRX) continuing to claw back from five-year lows and Inovio Pharmaceuticals Inc (NASDAQ:INO) rallying on promising drug news. Akorn, Inc. (NASDAQ:AKRX), meanwhile, has surged 39.9% to $26.19 -- making it one of the top percentage gainers on the Nasdaq -- after the company reported preliminary full-year earnings and sales that topped estimates. Option traders are piling on, too, with overall volume running at four times the expected intraday rate.

By the numbers, 3,922 calls have crossed the tape on AKRX, versus 2,840 puts. Most active is the stock's April 30 call, where it looks like new positions are being purchased. If this is indeed the case, call buyers are betting on AKRX breaking out above the round $30 mark by the close on Friday, April 15 -- when front-month options expire.

More broadly speaking, option traders have been initiating long puts relative to calls at a faster-than-usual clip in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), AKRX's 50-day put/call volume ratio of 0.39 ranks in the 74th percentile of its annual range.

Regardless of whether these speculative players are buying calls or puts, though, they are willing to pay a pretty penny for AKRX's near-term options. Not only does the stock's Schaeffer's Volatility Index (SVI) of 103% rest in the 92nd annual percentile, but its 30-day at-the-money implied volatility of 89% sits higher than 95% of all comparable readings taken in the past year. In other words, the equity's short-term options are pricing in elevated volatility expectations at the moment.

Today's bull gap notwithstanding, Akorn, Inc. (NASDAQ:AKRX) has been a technical laggard. Year-over-year, the shares have lost nearly half their value -- and notched a two-year low of $17.57 on Friday. Against this backdrop -- and with 18% of AKRX's float sold short -- it's possible some of today's call buying at the out-of-the-money strike is a result of short sellers hedging their bearish bets.

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