Puma Biotechnology Inc (PBYI) Calls Active Despite Scandal

Puma Biotechnology Inc (PBYI) is shaking off a former exec's insider trading charges, and today's option players have an unusual taste for calls

Sep 30, 2016 at 3:24 PM
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Late yesterday, former Puma Biotechnology Inc (NYSE:PBYI) executive Robert Gadimian was charged with insider trading by the Securities and Exchange Commission (SEC), allegedly making $1.2 million by front-running announcements on PBYI's breast cancer drug, neratinib. Earlier, PBYI shares seemed to be paying the price for Gadimian's wrongdoings, sitting out the broader Wall Street rally, but the stock has managed a recovery, and currently sits up 0.6% at $66.24. What's more, PBYI speculators are demonstrating an unusual appetite for call options.

PBYI has more than tripled since its May bottom, but remains down 16% so far in 2016. The shares recently stalled in the $68-$70 range -- which roughly coincides with a 23.6% Fibonacci retracement from its 2015 highs to the May 2016 low -- but could find a floor in the $60-$65 area, which contained PBYI's 2014 pullback.

In the option pits, calls are trading at twice their normal daily volume, and total option volume is on track to hit the 94th percentile of its annual range, although it's still relatively light on an absolute basis. The front-month October 55 call is today's most active option, followed by the weekly 10/7 70-strike call.

Today's appetite for calls marks a shift in the general sentiment toward PBYI, however. The biotech's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 1.91 sits higher than 80% of all other readings from the past year, indicating nearly two puts bought to open for every call over the past two weeks of trading. In addition, PBYI's Schaeffer's put/call open interest ratio (SOIR) of 1.46 is in the 84th percentile of its annual range, indicating a bigger-than-usual put bias among near-term traders.

During this time period, the out-of-the-money weekly 9/30 50-strike put has seen the biggest open interest increase -- with most of the options purchased -- and is currently PBYI's top open interest position. These put buyers will likely be kicking rocks when the options expire at the close today, unless PBYI manages to reverse course and plummet in the next half-hour. PBYI short sellers are also likely resenting today's recovery, with short interest up 6.8% over the last two reporting periods, and with shorted shares accounting for 28% of PBYI's float, which would take over 8.5 trading days to cover, at PBYI's average daily volume.

Regardless, now seems like an excellent time to purchase PBYI near-term options, given the biotech's Schaeffer's Volatility Index (SVI) of 67% sits just 1 percentage point from an annual low. This indicates near-term traders are pricing in relatively minimal volatility expectations for Puma Biotechnology Inc (NYSE:PBYI) options.


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