Bluebird Bio Stock Takes Off For Options Traders

Biotech BLUE had more than doubled year-over-year

Jun 27, 2017 at 10:27 AM
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Subscribers to Schaeffer's Event service recently enjoyed a 142% gain on bluebird bio Inc (NASDAQ:BLUE) June 90 calls. Below, we'll break down why we targeted BLUE stock to begin with, and how the options trade unfolded. 

Back in early May, shares of bluebird bio had just broken out of a pennant continuation pattern, and were sporting a year-over-year gain of 125%. In fact, the shares had been trending higher since November. This all came after a strong quarterly earnings report, where the company beat on the top and bottom line, and reported a 355% year-over-year rise in revenue.

Despite all of this, pessimism surrounded BLUE stock. Short interest levels were particularly noteworthy, with nearly 20% of the stock's float controlled by short sellers at the time. More importantly, average daily trading volumes revealed it would take these bears roughly three weeks to cover their positions. This is all suggested bluebird could benefit greatly from a short-covering situation. 

On top of this upside potential, it was a good time to target BLUE options, as premiums decreased following the company's earnings release. At the time, the stock's Schaeffer's Volatility Index (SVI) ranked near the bottom one-third of annual readings, hinting at unusually low volatility expectations among options traders. 

We initiated our position on May 5, and despite a brief pullback, bluebird bio shares took off. On June 9, we recommended options traders close half of their positions and collect profits, leaving the door open for additional gains, as well. Sure enough, BLUE stock continued to push higher, until we finally advised subscribers to close the rest of their position on June 16. 

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