Options Volume Explodes as Progenics Pharmaceuticals, Inc. (PGNX) Takes Off

Progenics Pharmaceuticals, Inc. (PGNX) options volume is hitting new highs

Jul 20, 2016 at 11:03 AM
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Drugmaker Progenics Pharmaceuticals, Inc. (NASDAQ:PGNX) is tearing higher, up 28.7% at $6.36 -- erasing its year-to-date loss. The rally also has the shares above their 36-month moving average for the first time since January. Today's impressive price action comes after the U.S. Food and Drug Administration (FDA) approved PGNX's Relistor tablets -- a treatment for opioid-induced constipation that is exclusively developed and commercialized by Valeant Pharmaceuticals Intl Inc (NYSE:VRX). As a result, the stock's options pits are on fire.

Specifically, PGNX options are crossing at a whopping 43 times their expected intraday rate, and options volume is already at an annual high of nearly 36,000 contracts. Put, call, and total options open interest are also seated at 12-month peaks. Calls are outpacing puts more than 3-to-1 so far today, with the most active spot by far belonging to the now-in-the-money August 6 call.

According to Trade-Alert, it looks like there could be some sell-to-close activity occurring here, as PGNX's 30-day at-the-money implied volatility sinks 54.5% to 78.9%, after settling at a 52-week peak of 173.4% yesterday. Trade-Alert specifically calls out one speculator who may have sold to close a block of 10,000 August 6 calls for 70 cents apiece that may have been bought to open last Friday for 65 cents, netting the trader a modest $50,000 profit ($0.05 gain * number of contracts * 100 shares per contract).

More broadly speaking, options traders have shown a preference for long calls over puts in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 4,115 calls on PGNX versus 756 puts, resulting in a top-heavy call/put volume ratio of 5.44.

A likely explanation for the recent call-buying frenzy is short sellers picking looking to protect their bearish bets against an upside surprise. In fact, more than 15% of PGNX's total float is wrapped up in short interest. At the stock's typical daily pace of trading, it would take about two weeks to cover all these pessimistic positions.

Considering PGNX's longer-term technical performance, such lofty short interest levels are not surprising. Even with today's bull gap, the shares are down 23% year-over-year. Still, both analysts watching the stock maintain a "strong buy" rating. Plus, the 12-month consensus price target of $10.75 sits at a level Progenics Pharmaceuticals, Inc. (NASDAQ:PGNX) hasn't seen in almost a year.

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