Drug Approval Drives Aralez Pharmaceuticals Inc (ARLZ) Options Demand

Aralez Pharmaceuticals Inc (ARLZ) put options are trading at 16 times the usual intraday pace

Sep 15, 2016 at 2:05 PM
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A day after plunging 11% and landing on the short-sale restricted list, Aralez Pharmaceuticals Inc (NASDAQ:ARLZ) has bounced -- sending stock and options volume to their loftiest levels in the past year. Specifically, the shares have jumped 5.3% to trade at $5.75, after the U.S. Food and Drug Administration (FDA) gave the green light to Yosprala, Aralez's heart attack prevention pill.

Put options, in particular, are in high demand. About 9,000 contracts are on the tape so far --16 times the expected intraday rate. ARLZ's most active strike is the in-the-money September 6 put, where it appears buy-to-open activity may be transpiring. If this is the case, the buyers anticipate the drug stock will reverse lower by tomorrow's close, when the put expires.

In recent weeks, though, speculators have been more interested in calls than puts. By the numbers, 4,859 ARLZ calls have been bought to open during the last 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), more than doubling the 2,133 puts purchased.

Underscoring this bias toward calls is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.53. Stated simply, ARLZ calls nearly double puts among options slated to expire in the next three months.

That's not to say every call buyer is a bull. Given that short interest ballooned 26.7% in the most recent reporting period -- and accounts for a hefty 7% of Aralez Pharmaceuticals Inc's (NASDAQ:ARLZ) float -- it's entirely possible short sellers have been hedging their bearish positions with calls. This is all the more likely, given the stock's steep 42% year-over-year loss.

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