The 6-Figure Options Bet on Soaring Array Biopharma Inc (ARRY)

M&A rumors have Array Biopharma Inc (ARRY) charging up the charts

Jan 13, 2017 at 2:06 PM
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Array Biopharma Inc (NASDAQ:ARRY) has had an exciting week, with buyout buzz fueling an earlier rally, which put the shares above a key retracement level. Today more unconfirmed M&A rumors seem to be swirling as ARRY soars 9.7% to $11.09 amid heavy volume, and earlier tapped a new nine-year high of $11.15. Meanwhile, one options trader placed a sizable bet, expecting the drug stock's ascent to stall.

Jumping right in, ARRY's call options are crossing the tape at 16 times the typical intraday pace, with call volume running in the 99th percentile of its annual range. Accounting for the bulk of this action is the March 12 call, where a sweep of 5,500 contracts was sold to open this morning, according to Trade-Alert. The call writer's goal is for ARRY to remain below the $12 mark through the option's expiration, on Friday, March 17. And by selling the calls, this trader pocketed a premium of over $412,000 (5,500 contracts * 100 shares per contract * $0.75 apiece).

Taking a step back, call-heavy action is nothing new for ARRY, though absolute volumes tend to be light. Specifically, the stock has seen more than 1,000 calls bought to open over the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), compared to just 47 puts. But call selling is even more popular, with nearly 5,100 ARRY calls sold to open over the same period.

Outside of the options pits, sentiment toward the biotech stock is rather upbeat. All nine analysts tracking the stock maintain the equivalent of a "strong buy" rating -- though today's climb has left the average 12-month price target of $10.13 sitting underfoot. And though short interest accounts for 10.7% of ARRY's total float, these bearish bets are also seated close to their lowest level since April 2014.

Given the stock's technical prowess, it seems unlikely bulls will lose faith anytime soon, unless the takeover talk gets shut down. Array Biopharma Inc (NASDAQ:ARRY) is sitting on a whopping 231% year-over-year lead, and is on track to close today above the $11 mark for the first time since late 2007.

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