FDA Nod Sets Heron Therapeutics Inc (HRTX) Options on Fire

Heron Therapeutics Inc (HRTX) received FDA approval for its chemotherapy-related nausea treatment

Aug 10, 2016 at 10:39 AM
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Heron Therapeutics Inc (NASDAQ:HRTX) was halted in electronic trading, after the company announced it received approval from the Food and Drug Administration (FDA) for its chemotherapy-related nausea treatment, Sustol. Though one sector peer is falling hard today while awaiting an FDA decision of its own, shares of HRTX boomed nearly 21% out of the gate, but were last seen with a more modest gain of 6.3% at $21.12. Options traders have wasted no time targeting the drug stock, with options trading at 13 times the expected intraday rate.

Drilling down, total options volume is running in the 99th percentile of its annual range, with 5,656 contracts on the tape. Calls are outpacing puts, though, thanks to one speculator possibly rolling her long September 17.50 calls up to the 22.50 strike.

Aside from this, the August 20 put is popular, where it appears traders are purchasing new positions. Buyers of the puts expect HRTX to pull back below the round strike price by the front-month expiration, at the close on Friday, Aug. 19.

More broadly speaking, while options volume on the equity typically runs light, traders have shown a preference for bearish bets over bullish, per the stock's 10-day put/call volume ratio of 2.25 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Not only does this reading indicate long puts have more than doubled calls over the past two weeks, it ranks higher than 90% of all comparable readings in the past year.

While not everyone is on HRTX's bearish bandwagon, skepticism is seen elsewhere on the Street. Specifically, short interest accounts for more than one-fourth of HRTX's available float. At the stock's average daily trading pace, it would take nearly five weeks to cover all these pessimistic positions. Should the drugmaker extend today's rally, it could get an extra boost if bears begin to hit the bricks.

However, even with today's bull gap, Heron Therapeutics Inc (NASDAQ:HRTX) is still sitting on a 21% year-to-date loss. Plus, the shares are staring at resistance in the form of their overhead 320-day moving average -- a trendline that has caused problems on the charts since early February.

HRTX daily chart

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