Most Active Weekly Options: Sarepta Therapeutics Inc and Valeant Pharmaceuticals Intl Inc

Drug stocks Sarepta Therapeutics Inc (NASDAQ:SRPT) and Valeant Pharmaceuticals Intl Inc (NYSE:VRX) are making sharp moves today, bringing out short-term options traders

by Alex Eppstein

Published on May 2, 2016 at 12:42 PM
Updated on May 2, 2016 at 1:28 PM

The 20 stocks listed in the table below have attracted the highest total weekly options volume during the past 10 trading days. Stocks highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. Two notable names are drug stocks Sarepta Therapeutics Inc (NASDAQ:SRPT) and Valeant Pharmaceuticals Intl Inc (NYSE:VRX), with the respective companies tentatively scheduled to report earnings within the next week.

most active weekly options may 2

SRPT has exploded 12.7% higher today to trade at $15.99, following an upgrade to "outperform" at Oppenheimer -- which also reinstated its price target of $60, more than triple current levels. This is Sarepta's first upgrade in six months, and is a much-needed breath of fresh air, after a Food and Drug Administration (FDA) panel dealt a blow to the stock last month. Year-to-date, the stock -- no stranger to sharp moves -- is still sitting in a 58.6% hole.

In the options pits, SRPT traders have been unusually focused on puts over calls. According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day put/call volume ratio of 0.46 ranks in the high 86th annual percentile. In other words, traders have been buying to open bearish bets over bullish at a quicker-than-usual pace.

Today, Sarepta Therapeutics Inc's short-term options are in demand, as its 30-day at-the-money implied volatility earlier hit an annual high of 387.6%. More broadly speaking, SRPT options are changing hands at 1.4 times the usual intraday rate. The most active weekly strike is the 5/6 16 put, where fresh positions are being initiated ahead of expiration this Friday night.

On the other hand, drug stock VRX is down 6.9% at $31.05, after activist investor Warren Buffett said the biotech's price hikes were indefensible and laid the blame squarely on outgoing CEO Michael Pearson. "I don't think you'd want your son to grow up and run a company in the manner that Valeant was run," Buffett added. Adding insult to injury, BMO slashed its price target on VRX to $44 from $66. Within the last few minutes, though, activist investor and Valeant board member Bill Ackman pushed back against Buffett.

Short sellers are benefiting from the stock's demise. In the last two reporting periods, short interest on VRX soared nearly 90%, and now accounts for 7% of its float. Today, however, Valeant is on the short-sale restricted list. Analysts have taken a glass-half-empty approach toward the shares, as well. Specifically, 11 of 17 have doled out a "hold" or worse suggestion.

On the other hand, in today's options pits, traders are expressing confidence. Calls are being exchanged at 1.8 times the expected intraday rate and outstrip the number of puts on the tape. In terms of weekly options, the 5/6 32-strike call is leading the pack, and it seems safe to assume fresh contracts are being purchased, as traders wager on a rebound through the end of the week.

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