The Technical Level Sarepta Therapeutics Inc (SRPT) Options Players are Watching

Sarepta Therapeutics Inc (SRPT) is booming on upbeat drug news

Jan 10, 2017 at 2:57 PM
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Sarepta Therapeutics Inc (NASDAQ:SRPT) is 21.2% higher at $37.89, after earlier being halted for volatility, on news the company's launch of its controversial Duchenne muscular dystrophy (DMD) treatment is going better than expected. Specifically, CEO Edward Kaye noted that more than 250 patients in the U.S. are in the process of getting the drug -- well above predictions. Meanwhile, the company also announced a licensing agreement with Nationwide Children’s Hospital for an experimental gene therapy program. All the news has caught the attention of options traders, who seem to have a round-number target in mind.

Digging right in, SRPT options are trading at seven times the usual intraday rate, with calls more than doubling puts. In fact, call volume is currently running in the high 94th percentile of its annual range. Topping today's action is the January 2017 40-strike call, followed closely by the 40-strike put, with a mix of buying and selling at each -- though, in both cases, open interest outstrips volume. Notably, call buyers are likely getting a much better deal than put buyers, as SRPT's 30-day at-the-money implied volatility skew is seated in the 100th annual percentile.

Even with today's jump, there's reason to believe SRPT may have a hard time surpassing the round $40 level. After all, the January 2017 40-strike call is home to peak open interest among all the stock's options, and data from the major exchanges confirms a large number of these positions were bought to open. An unwinding of the hedges related to these bets could cause the strike to act as resistance as front-month expiration approaches.

What's more, SRPT hasn't closed a day above $40 since Nov. 10. Plus, the round-number level corresponds with a 61.8% Fibonacci retracement of the stock's September 2016 low and high, potentially reinforcing resistance. On the bright side, SRPT is on pace to finish today above its 30-day moving average for the first time since October.

SRPT Daily Chart January 10

A look at recent options action suggests today's preference for SRPT calls is nothing new. Across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has seen more than five calls purchased for each put over the past two weeks. Moreover, the resulting call/put volume ratio of 5.33 ranks higher than 90% of all readings from the last 12 months.

Elsewhere, short interest has been steadily falling, dropping roughly 60% since topping out at a record peak last May. Analysts also seem to be on board with Sarepta Therapeutics Inc (NASDAQ:SRPT), as 71% of the firms providing coverage maintain a "buy" or better opinion, without a single "sell" rating in sight. In fact, an analyst at Baird waxed optimistic on SRPT today, reiterating an "outperform" rating and a price target of $102 -- a level the shares haven't seen in almost 17 years. Plus, the brokerage firm underscored Sarepta as its top mid-cap pick for 2017.

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