Call Players Blitz Ariad Pharmaceuticals, Inc. (ARIA) on Brigatinib Update

Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) call options are outpacing put options by a 7-to-1 margin

by Karee Venema

Published on Jun 6, 2016 at 10:39 AM
Updated on Jun 24, 2020 at 10:16 AM

It's a big day for biotech stocks, as an onslaught of drug data hits the Street. Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA), for example, said that more than half of participants using its lung cancer treatment, Brigatinib, reached the primary endpoint. Nevertheless, ARIA stock is off 2.4% at $8.76 -- and options volume is running at two times the average intraday rate.

While option volume is still light on an absolute basis, call options are outpacing put options by a 7-to-1 margin. This is just more of the same in ARIA's options pits, with traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) buying to open 13,831 calls over the past two weeks, versus just 1,453 puts.

Drilling down, the stock's July 10 call has seen the biggest rise in open interest over this time frame, with 12,612 contracts added. It seems safe to assume that most of this activity was of the buy-to-open kind, per data from the major options exchanges and Trade-Alert. In other words, traders are betting on a move to double-digits by the close on Friday, July 15, when back-month options expire.

However, there could be an ulterior motive behind the call buying at this out-of-the-money strike. Short interest accounts for a hefty 17.5% of ARIA's available float -- or 7.1 times the average daily trading volume -- meaning shorts may have been hedging their bearish bets against any upside risk.

Regardless of the reason, those purchasing ARIA's short-term options are willing to pay a pretty penny. Not only does the stock's Schaeffer's Volatility Index (SVI) of 104% rest in the 62nd annual percentile, but its 30-day at-the-money implied volatility of 73.2% rests above 76% of all other comparable readings taken in the past year. In other words, premium on ARIA's near-term options is pricing in relatively lofty volatility expectations at the moment.

Technically, ARIA has doubled since bottoming at a two-year low of $4.37 in mid-February. However, the $10 mark has proven elusive since a massive bear gap in October 2013 wiped out roughly two-thirds of ARIA's value in one fell swoop. In fact, Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) has closed in double-digit territory since Oct. 8, 2013.

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