4 Biotechs with Attractive Options Ahead of Earnings

These biotech stocks' options look relatively inexpensive ahead of earnings, from a volatility standpoint

by Josh Selway

Published on Aug 5, 2016 at 12:34 PM
Updated on Jun 24, 2020 at 10:16 AM

Biotech firms Allergan plc (NYSE:AGN)Clovis Oncology Inc (NASDAQ:CLVS)Kite Pharma Inc (NASDAQ:KITE), and Opko Health Inc. (NYSE:OPK) are all scheduled to report earnings on Monday. What's more, each of these stocks' options appear attractively priced, according to their Schaeffer's Volatility Index (SVI) readings. Let's take a closer look at the data on AGN, CLVS, KITE, and OPK ahead of earnings. 

Starting with AGN, the stock is currently trading at $253.71, putting it almost 19% lower in 2016. Aside from recent M&A speculation, Wall Street is also reacting to disappointing clinical trial results for Allergan partner Gedeon Richter Nyrt.'s Cariprazine drug. Mizuho has raised its price target on AGN to $246 from $232, but that still represents a discount to current levels. 

As for options traders, short-term speculators have taken a notably call-skewed approach, with the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.50 ranking in the 8th annual percentile. This may be because Allergan plc has moved higher in the session following its previous two earnings reports. No matter the reason, AGN's SVI of 31% ranks in the 16th percentile of its 12-month range, signaling unusually muted volatility expectations  being priced in on near-term options. 

Turning to CLVS, the stock has also moved higher in the sessions following its two latest earnings reports, which may be why so much recent options activity has centered on call buying. For instance, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), more than 1,000 calls have been bought to open over the last two weeks, compared to just 23 puts. Currently, CLVS' SVI of 91% ranks in the low 15th annual percentile. 

On the charts, Clovis Oncology Inc is getting a huge boost today, thanks to a fresh "buy" rating and a $25 price target at SunTrust Robinson. The shares were last seen 14.6% higher at $17.69, though this does little to make up for their long-term slide

Call buyers have also dominated KITE's options pits, with the stock's 10-day call/put volume ratio at the ISE, CBOE, and PHLX coming in at 4.30 -- higher than 70% of the past year's readings. This seems a little strange heading into earnings, considering the stock has lost ground in the session following five of the past eight reports. Meanwhile, KITE's SVI of 54% sits just 7 percentage points from a 12-month low. 

Looking at the charts, Kite Pharma Inc has picked up the pace recently, adding over 25% since mid-July to trade at $58.64. However, the shares have been struggling just below their 2016 breakeven level, which sits at $61.62. 

Finally, OPK has historically been rather quiet immediately following earnings, putting up an average one-day move of just 0.5% over the past three quarters. Still, traders have purchased almost 38 calls for every put during the past two weeks at the ISE, CBOE, and PHLX -- though volume has been light on an absolute basis. As for the stock's SVI, its reading of 42% comes in just 10 percentage points from an annual low. 

Opko Health Inc. is currently hovering right below its year-to-date breakeven level, last seen trading at $10.01. In fact, OPK has been consolidating near the round-number $10 level since early July. Short sellers would like to see the stock break lower, with nearly 20% of its float is sold short -- a figure that may help explain the recent preference for call buying

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