Ironwood Pharmaceuticals, Inc. (IRWD) Options Volume Soars After Scathing Report

Ironwood Pharmaceuticals, Inc.s (NASDAQ:IRWD) options volume is at an annual high, after Phase Five Research released a report that "exposed hideous issues" with IBS drug Linzess

by Josh Selway

Published on Apr 26, 2016 at 2:36 PM

Biotech stock Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) ​is selling off today -- like many of its sector peers -- down 8.9% to $9.88, after Phase Five Research released a scathing report that "exposed hideous issues" in the company's Irritable Bowel Syndrome (IBS) drug, Linzess. In the report, Phase Five says the drug "carries a substantially greater risk even when compared to [one] that was taken off the market in 2000 due to severe safety issues." Further, Phase Five warned that "the probable removal of Linzess from the market ... will spell utter disaster" for IRWD. As such, IRWD stock volume is on pace to hit an annual high, while options volume has already nearly doubled its previous 12-month peak. 

More specifically, more than 11,000 IRWD options have traded today, compared to a single-day average of just 427. Much of the activity has taken place in the November series, with one trader possibly betting on more volatility for IRWD by initiating a long strangle at the November 7.50 put and 12.50 call. By purchasing symmetrical blocks of 2,500 contracts at each strike, for a net debit of $2.50 per pair of contracts, the speculator's profits will increase the lower IRWD sinks beneath $5 (put strike minus net debit) or rallies north of $15 (call strike plus net debit) within the options' lifetime.

While Ironwood is on the short-sale restricted list today, the stock is a favorite among short sellers. Though short interest has declined slightly in recent reporting periods, over 15% of IRWD's float is sold short, representing over three weeks' worth of buying power, at the equity's average daily volume. 

Analysts, meanwhile, have issued three "strong buy" ratings on the stock, while four others have called it a "hold." IRWD's average 12-month price target comes in at $12.33. 

From a technical perspective, Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) has now surrendered nearly one-third its value in the past 12 months. Today, the shares are on pace for their first close in single-digit territory since Feb. 29. What's more, the Phase Five report is overshadowing news that Ironwood just purchased the marketing rights to AstraZeneca plc's (ADR) (NYSE:AZN) gout drug, Zurampic. 

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