Celgene Corporation (CELG) Rallies on Revlimid; Call Options Fly

The European Commission approved Revlimid, a cancer drug made by Celgene Corporation (CELG)

by Alex Eppstein

Published on Jul 15, 2016 at 10:52 AM
Updated on Jul 15, 2016 at 10:52 AM

Celgene Corporation's (NASDAQ:CELG) cancer drug Revlimid was met with approval by the European Commission. The news prompted Stifel to start coverage on the biotech stock with a "buy" rating and a $138 price target, sending the shares 2.6% higher to trade at $104.10. This should be greeted with cheers in options land, where traders have been placing bullish bets at an accelerated clip.

Diving right in, speculators have bought to open 4.08 CELG calls for every put during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The corresponding call/put volume ratio rests just 4 percentage points from a 12-month high.

Underscoring this call-skew is CELG's Schaeffer's put/call open interest ratio (SOIR) of 0.69. Not only does this ratio indicate calls outstrip puts among options expiring in the next three months, but it ranks below 94% of all other readings from the prior year. In other words, short-term open interest levels have rarely been so call-focused.

In today's trading, it's more of the same. Over 9,300 CELG calls are on the tape, representing double the expected intraday amount, and five times the number of puts exchanged. Digging deeper, buy-to-open activity is detected at the out-of-the-money weekly 7/22 110-strike call. In other words, these call buyers foresee CELG toppling $110 by next Friday's close, when the series expires.

Bullish expectations prevail elsewhere on the Street, too. Of the 17 analysts tracking the stock, 14 have handed out a "buy" or better rating, compared to three "holds" and not a single "sell." Meanwhile, short interest has been shrinking, and currently accounts for just 1% of CELG's float.

On the charts, though, Celgene Corporation (NASDAQ:CELG) has actually underperformed. The biotech stock has surrendered 13% of its value this year, and even today's upside move is being contained by the descending 160-day moving average -- which has acted as a staunch level of resistance since late April.

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