Call Players Flock to Soaring bluebird bio Inc (BLUE)

Recent call buying doesn't mean everyone will be happy with bluebird bio Inc's (BLUE) rally

Kirra Fedyszyn
Sep 8, 2016 at 2:39 PM
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Biotech stock bluebird bio Inc (NASDAQ:BLUE) has soared 9.2% higher to $57.65 today on news the company is opening a Phase 3 trial on its drug, LentiGlobin, for patients with a bleeding disorder called transfusion-dependent beta-thalassemia. The shares' pop has action heating up in BLUE's options pits, where volume is typically light on an absolute basis.

Digging right in, BLUE call options are crossing the tape at five times their usual intraday pace, putting call volume on pace to finish in the 98th percentile of its annual range. Leading the action is the out-of-the-money September 60 call, where it looks like traders are likely purchasing new positions. Buyers of the call are hoping BLUE can continue its climb beyond the $60 level by the front-month series' expiration, at the close next Friday.

Taking a step back, call buying has been a popular strategy among BLUE options traders in recent weeks. In fact, the stock's 50-day call/put volume ratio of 5.29 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is just 4 percentage points from an annual high.

It's possible some recent call buyers have less-than-bullish hopes for the stock, however. Short interest on BLUE currently sits just shy of a record high, representing 23.2% of the equity's available float. At BLUE's average daily volumes, it would take nearly two weeks for bears to cover their positions -- plenty of sideline cash that could boost the shares higher on a short-squeeze. In any case, this hefty short interest level suggests short sellers may have picked up calls as a hedge against a surprise upside move, such as today's.

On the technical side, bluebird bio Inc (NASDAQ:BLUE) is lower year-to-date, but has been marking a series of higher highs and lows since bottoming in mid-May around $35. Plus, the stock is now trading firmly above multiple layers of support, including the round $50 level, as well as the 40- and 200-day moving averages, which formed a bullish cross in late August.

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