Option Bulls Attack Ariad Pharmaceuticals, Inc. (ARIA) Again

Ariad Pharmaceuticals, Inc. (ARIA) is heating up, following the announcement of a new clinical trial

by Alex Eppstein

Published on May 31, 2016 at 3:26 PM
Updated on Jun 24, 2020 at 10:16 AM

Shares of Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) are breaking out along with several other sector peers, after the drugmaker announced the initiation of a Phase 1/2 clinical trial on a new lung cancer treatment. Specifically, the biotech stock is 8.2% higher at $8.89, prompting accelerated betting in its options pits.

Diving right in, 15,000 call options are on the tape -- eight times the expected intraday clip, and in the 99th percentile of its annual range. Also, for the second session in a row, bullish betting is all the rage. According to Trade-Alert, speculators are buying to open the July 10 and 11 calls, expecting ARIA to trek into double-digit territory by back-month expiration, at the close on Friday, July 15.

As an aside, the biotech stock hasn't touched $10 since hitting an annual high of $10.07 on Aug. 28. Meanwhile, the last time ARIA saw $11 was prior to a massive October 2013 bear gap. As such, delta on the respective strikes is 0.38 and 0.28.

Today is by no means the only time options traders have targeted short-term calls over puts. In fact, ARIA's Schaeffer's put/call open interest ratio (SOIR) of 0.24 indicates calls roughly quadruple puts among options set to expire in the next three months. On top of that, the SOIR ranks in the call-heavy 12th percentile of its annual range.

Of course, not everyone's a fan of ARIA. Short sellers, in particular, are stacked against the stock -- with 17.5% of its float sold short. At the equity's typical trading levels, it would take more than seven sessions to cover these bearish positions. What's more, it's possible short sellers have been buying calls recently, trying to hedge against extended gains in the shares.

And why not? While Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) hasn't flirted with double digits in a while, it's nonetheless been powering higher in 2016. Specifically, ARIA is up over 42% year-to-date, and is on track for its highest close in roughly nine months.

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