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Horizon Pharma PLC (HZNP) Option Bull Bets On a Big Breakout

Horizon Pharma PLC (HZNP) has attracted an unusually optimistic options bet

Jul 6, 2016 at 12:17 PM
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Horizon Pharma PLC (NASDAQ:HZNP) is trading 2.5% higher at $17.13 today, as speculation over a possible takeover of one fellow biotech heats up. Amid this positive price action, HZNP is seeing some unusual action in its options pits, where calls are changing hands at roughly 22 times their typical intraday rate.

Drilling down, almost all of this activity is centered at the stock's August 18 call, which has more than 11,500 contracts on the tape -- compared to 413 for the next most active option. It looks like one option trader bought to open a block of 8,000 calls at this strike for $1.15 apiece -- a total cash outlay of $920,000 (number of contracts x premium paid x 100 shares per contract). The buyer is betting the shares of HZNP will rally beyond breakeven at $19.15 (strike + premium paid) by back-month expiration at the close on Friday, August 19.

More broadly speaking, options traders have shown a strong preference for long calls over puts lately. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), HZNP's 50-day call/put volume ratio of 5.53 is seated higher than 96% of all readings taken in the past year.

However, there could be an ulterior motive to this recent rush of call buying. While short interest fell 9% during the last two-week reporting period, these bearish bets still account for about 13% of HZNP's total float, or one week of trading, at the stock's average daily volume. As such, it's possible short sellers have been purchasing long calls to hedge against any upside risk.

In fact, Horizon Pharma PLC (NASDAQ:HZNP) is staring up at several layers of technical resistance. Most recently, HZNP has been bumping heads with its 30-day moving average, while the $18-$20 region has also served as resistance, shutting down HZNP's rallies since the start of the year.

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