Sarepta Therapeutics Inc (SRPT) Surge Sparks Options Frenzy

Sarepta Therapeutics Inc (NASDAQ:SRPT) is rocketing higher ahead of Monday's FDA vote

Apr 22, 2016 at 3:27 PM
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Sarepta Therapeutics Inc (NASDAQ:SRPT) is putting on a clinic this afternoon, up more than 37% at $15.20 after being halted earlier on volatility. The massive move higher -- which follows yesterday's plunge induced by the Food and Drug Administration (FDA) -- was sparked by the surprise formulation of FDA voting questions ahead of Monday's highly anticipated meeting on the drugmaker's muscle wasting treatment. However, SRPT remains on the short-sale restricted list. Meanwhile, the stock's options pits are running at a breakneck speed.

Diving right in, more than 122,000 SRPT options are on the tape -- nine times the expected intraday clip. Looking more closely, it looks like one trader initiated a bull call spread, buying to open a block of 5,000 June 30 calls and selling to open a matching lot of June 40 calls for a total cash outlay of $725,000 ($1.45 net debit per spread * 5,000 contracts * 100 shares per contract). In other words, the options trader is expressing cautious confidence SRPT will more than double by June expiration.

Taking a step back, though, options traders have actually been placing bearish bets over bullish at an accelerated rate in recent weeks. Across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SRPT has amassed a 10-day put/call volume ratio of 0.65 -- just 10 percentage points from a 12-month peak.

Similar negativity is reflected among short sellers. During the last two reporting periods, short interest on SRPT spiked nearly 37%, and it now accounts for roughly 43% of the biotech stock's float -- which, at its average daily trading volumes, would take about six sessions to buy back. As such, today's out-of-the-money call spread could be attributed to hedging by a short.

Technically speaking, the bearish case is better supported on the charts. It wasn't so long ago that Sarepta Therapeutics Inc (NASDAQ:SRPT) was trading north of $30 per share -- that is, until the FDA sent the biotech stock gapping sharply lower in mid-January.

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