Obamacare Revelation Sends Biotech Stocks Flying

Biotech stocks are trading higher, thanks to a government report released this morning

Jun 22, 2016 at 3:36 PM
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Following a sector-wide sell-off on Tuesday, biotech stocks shot higher Wednesday morning, thanks to a government report saying a drug cost-cutting measure from the Affordable Care Act (ACA), or "Obamacare," will not be needed this year. As such, iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB), an exchange-traded fund (ETF) that tracks the biotech sector, is up 0.6% at $256.49. This price action has drawn the attention of options traders, who are targeting some of the ETF's top holdings, including Amgen, Inc. (NASDAQ:AMGN)Regeneron Pharmaceuticals Inc (NASDAQ:REGN), and Celgene Corporation (NASDAQ:CELG)​. 

AMGN call volume is running at two times the average intraday pace, with these options accounting for eight of the stock's 10 most popular contracts. The weekly 6/24 series is especially popular, with the 155-strike call seeing the most trading activity. If traders are buying to open positions here, they're betting on AMGN toppling $155 before the end of the week, when the options expire. Delta on the call has almost doubled since yesterday's close, though the options market is still giving the option just a 12% chance of moving into the money by expiration. 

It's not as though this would be uncharted territory for Amgen, Inc., which is IBB's largest holding. The stock traded above $155 as recently as June 13. At last check, AMGN was up 0.4% at $150.02, paring its year-over-year loss to 7.6%. 

As for REGN, put volume is on the verge of hitting a 52-week high. The weekly 7/22 320- and 325-strike puts are most popular today, with the August 420 call close behind. Elsewhere, it looks like some traders are buying to open the weekly 6/24 342.50-strike put. Put buying is far from unusual for REGN, though, as the stock's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at an annual high of 2.86. 

REGN stock is up 2% at $352.01. This is a rare day in the sun for the shares, as Regeneron Pharmaceuticals Inc has lost 35% on the year. More recently, the shares were sent sharply lower after a meeting with REGN's 100-day moving average.

Lastly, CELG options are trading at two times the normal rate. Traders appear to be opening new positions at the August 105 and weekly 6/24 101- and 100-strike calls -- the stock's three most popular options today. This is quite the change of pace for CELG options traders, as the stock's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 3.12 shows that put open interest more than triples call open interest among near-the-money options in the July series. 

On the charts, Celgene Corporation has fallen off a cliff since trading above $140 nearly a year ago, last seen at $99.37. Luckily for shareholders, the $95-$96 area appears to be a strong level of support, as it has contained several CELG pullbacks since late January. 

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