Options Sizzle as Alder Biopharmaceuticals Inc (ALDR) Soars

Volume both in and out of the options pits has hit an annual peak on Alder Biopharmaceuticals Inc (NASDAQ:ALDR) today

by Karee Venema

Published on Mar 28, 2016 at 11:40 AM
Updated on Mar 28, 2016 at 11:43 AM

A number of biopharmaceutical stocks are breaking out today following positive drug data, and Alder Biopharmaceuticals Inc (NASDAQ:ALDR) is no exception. The stock has gapped 51% higher to $25.94, after ALDR's injectable migraine drug, ALD403, was successful in a mid-stage trial. Additionally, Jefferies said the treatment "should be as good if not better than others in development." Against this backdrop, volume both in and out of the options pits has reached annual-high levels.

By the numbers, roughly 8.1 million shares have traded on ALDR so far today, easily exceeding the 12-month high of 5.8 million shares set last June -- just days after Credit Suisse waxed optimistic on the firm's migraine treatment. Meanwhile, more than 3,600 options have traded at last check, well above the average daily volume of 323 contracts -- as well as the 2,525 options that traded on Sept. 25, the previous 52-week peak.

Drilling down on the day's options activity, ALDR's October 25 put has seen the most action. Near-term traders, meanwhile, are honing in on the April 30 call. It seems safe to assume new positions are being initiated here; however, given the wide bid-ask skew, it's impossible to tell at this time whether those positions are being bought or sold.

Widening the scope, the stock's April 25 call has seen the biggest rise in open interest over the past 10 sessions -- with 1,774 positions added -- and it appears as if the majority of the action was of the buy-to-open kind. Given that this option was so far out-of-the-money heading into today's session, it may have been initiated by short sellers looking to hedge against any unexpected upside.

In fact, with about 5 million shares sold short -- or 11.6% of Alder Biopharmaceuticals Inc's (NASDAQ:ALDR) available float -- short interest is at an all-time peak. What's more, it would take nearly two weeks to cover all of these bearish bets, at the stock's average daily pace of trading. As such, it's entirely possible that some of today's upside gap is being driven by shorts scrambling to cover their positions.

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