2 Red-Hot Biotech Stocks Inspiring Options Action After Earnings

Ariad Pharmaceuticals, Inc. (ARIA) and Horizon Pharma PLC (HZNP) are shooting up the charts after beating earnings expectations

Nov 7, 2016 at 11:37 AM
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While this earnings season is past its peak, there are still plenty of results filing in this week. Among the names kicking off the earnings reactions today are biotech firms Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) and Horizon Pharma PLC (NASDAQ:HZNP). Both stocks are booming in the wake of their respective reports, and below we'll take a look at how options traders are responding.

ARIA has added 8.5% to trade at $9.63 this morning -- widening its year-to-date lead to an impressive 54.1% -- after the drugmaker reported a slimmer-than predicted third-quarter loss. However, the shares are still far short of their October annual highs, and are trying to close above their 10-day moving average for the first time since selling off precipitously.

Understandably, short interest on the stock has been climbing -- up nearly 11% during the most recent two-week reporting period. These bearish bets now represent 18.6% of ARIA's available float, and would take roughly one week to cover, at the equity's average daily pace.

Options traders have also taken a pessimistic approach of late. ARIA's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits in the 85th percentile of its annual range, at 1.09. What’s more, the stock's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 2.38 shows puts more than doubling calls among near-the-money options in the November series.

Today, however, calls are trading at almost three times the usual intraday rate, with volume running in the 97th percentile of its 12-month range. Accounting for much of the volume is some likely buy-to-open action spotted at the November 11 call. The buyers are betting on Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) toppling the $11 mark -- still a 14% premium over current levels -- before the close on Friday, Nov. 18, when the front-month series expires.

Turning our attention to HZNP, the company easily beat its quarterly per-share earnings estimates, helping the stock tack on 12.8% to $16.97 -- its biggest intraday percentage gain in six months. But the shares are still down roughly 22% on a year-to-date basis. The equity has had a fairly choppy year on the charts, but just bounced off of familiar support at the $15 level.

Traders don't have much confidence, however. Short interest on the stock is elevated, representing more than 12% of HZNP's available float. At the security's average daily volume, it would take more than six sessions to cover all these pessimistic positions.

On the surface, it would appear that bearish outlook doesn’t extend to the options pits, where speculators have purchased nearly five HZNP calls for each put over the last 10 days on the ISE, CBOE, and PHLX. The stock's SOIR of 0.25 echoes this call-skewed approach, too, sitting just 3 percentage points from an annual low. But with short interest running high, it's certainly possible that some recent call buyers were HZNP short sellers looking for a hedge.

Today, puts are popping in Horizon Pharma PLC's (NASDAQ:HZNP) options pits, despite the stock's upward price action. In fact, puts are changing hands at twice the usual rate for this point in the day, while calls are trading unusually slowly.

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