Options Volume Sizzles on 2 Soaring Biotech Stocks

Exelixis, Inc. (EXEL) and ACADIA Pharmaceuticals Inc. (ACAD) are shaking off sector headwinds

by Kirra Fedyszyn

Published on Jun 6, 2016 at 1:25 PM
Updated on Jun 24, 2020 at 10:16 AM

Drugmakers are on the move today, and mostly to the downside, with Food and Drug Administration (FDA) news sending some plummeting, while drug data sinks others. But it's not bad news across the whole sector today, as biotech stocks Exelixis, Inc. (NASDAQ:EXEL) and ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) enjoy significant gains, sending options volume soaring.

EXEL has added 7.9% at $7.11 today, after the company announced positive results in a trial of its treatment for advanced kidney cancer. The shares have been sprinting higher for months, bringing their year-over-year gain to a whopping 104%. Unsurprisingly, analysts have been widely optimistic, with four out of five calling EXEL a "strong buy," with not a "sell" opinion in sight. But the shares could stand to benefit from future price-target hikes, as the average 12-month price target currently sits just underfoot, at $7.

Meanwhile, it looks like some traders have been expecting a pullback. Short interest on EXEL has been on the rise, climbing by about 12% during the two most recent reporting periods, and now represents nearly 23% of the stock's available float. At the equity's average pace of trading, it would take almost eight full days to cover these bearish positions.

Calls have been a heavy favorite in EXEL's options pits of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day call/put volume ratio rests at a top-heavy 34.52 -- higher than 95% of the past year's readings. Still, some of these recent call buyers could be short sellers looking to hedge their positions against a rally from the stock.

As the shares soar today, EXEL options are even hotter than usual, crossing at nine times the normal intraday pace. The most popular options by far are the August 7 put and August 8 call, thanks to two large spread trades. Elsewhere, traders appear to be buying to open the July 7 call, betting on extended gains from EXEL through the close on Friday, July 15, when back-month options expire. 

ACAD is also soaring today, up 7.3% at $38.69, bringing its year-to-date gains to 8.5%. The company last week announced the release of its drug Nuplazid for the treatment of Parkinson's psychosis, marking the first treatment to target the symptom. The stock has more than doubled since hitting an annual low of $16.64 in February, thanks in part to support from its 10-week moving average. As such, 86% of the brokerage firms providing coverage rate the stock a "strong buy."

Like EXEL, however, ACAD has seen an influx of short sellers -- in increase of 11.6% over the most recent two-week reporting period, to be exact. These pessimistic bets currently account for one-quarter of the stock's total float, and would take more than six sessions to buy back, at ACAD's typical daily volume.

Also, ACAD has seen a significant preference for calls of late. The security's 10-day ISE/CBOE/PHLX call/put volume ratio of 14.07 sits higher than 90% of the past year's readings. Echoing this trend is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.44 -- in the low 10th percentile of its annual range -- showing near-term traders have been unusually call-skewed toward ACAD.

Today ACAD's options are trading hands at four times their usual intraday clip, with calls more than tripling puts. Buy-to-open action looks to be taking place on several calls in the stock's June series, but some traders may be eyeing a short-term ceiling by selling to open the July 40 call -- the most popular option today. These traders are betting on ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) to hold below $40 through July options expiration.

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