Takeover Talk Has Call Buyers Rushing ACADIA Pharma

ACADIA Pharmaceuticals Inc. (ACAD) stock is rallying on rumors of an M&A offer

Feb 3, 2017 at 2:51 PM
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ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is higher today on M&A buzz, with sources reporting the biotech firm has received a takeover offer from AstraZeneca plc (ADR) (NYSE:AZN). The news had ACAD as much as 8.6% higher earlier, though the shares were last spotted up 4.6% at $36.84, on pace for their highest close since August. Meanwhile, traders have been rushing to the stock's options pits, with ACAD calls changing hands at five times the expected intraday rate.

Jumping right in, ACAD call volume is running in the 98th percentile of its annual intraday range, with roughly 12,000 contracts on the tape, compared to just 1,584 put options. In fact, all 10 of the stock's most popular strikes are calls. Most active by far is the February 40 call, where Trade-Alert suggests options traders have been purchasing new positions, betting on ACAD to rally above the round $40 mark by front-month expiration, at the close on Friday, Feb. 17.

Of course, ACAD is no stranger to call buying. Across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OXM PHLX (PHLX), options traders have purchased the stock's calls over puts by a more than 9-to-1 clip over the past two weeks. The resulting call/put volume ratio of 9.40 ranks near the top third of all comparable readings from the previous year.

It's possible not all call buyers are bulls, however. At present, 23.3% of ACAD's float is tied up in short interest -- a record high. It would take almost eight sessions to cover all those bearish bets, at the stock's average daily pace. As such, it's reasonable to assume some short sellers may have picked up ACAD calls to hedge their positions against an upside surprise, like the one we're seeing today. That said, the shares could get a healthy boost from a short-squeeze situation among unprotected bears.

From a technical standpoint, ACAD has been on a role  in recent months, adding 78% since its early November low. Now, the shares seem to be facing off with the $36-$38 region, which shut down rallies in July and September. One other reason traders might want to exercise caution: ACADIA Pharmaceuticals Inc.'s (NASDAQ:ACAD) 14-day Relative Strength Index (RSI) of 73.5  is seated in overbought territory, suggesting the stock could be due for a breather.

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