Surging bluebird bio Stock Attracts Fresh Batch of Call Buyers

Call open interest on BLUE is now at an annual high

Sep 14, 2017 at 1:42 PM
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Biotech stock bluebird bio Inc (NASDAQ:BLUE) continues to be a major winner for shareholders and options traders alike. The equity just hit a two-year high of $136.85, and was last seen 5.3% higher at $133, bringing its one-year gain to more than 111%. Not surprisingly, bullish options traders continue to target BLUE, betting the shares will rise even further in the weeks ahead. 

Starting with data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), bluebird has a 10-day call/put volume ratio of 5.52, which ranks in the 85th annual percentile. This reveals a stronger-than-usual appetite for bullish options bets.

Moreover, the security has a Schaeffer's put/call open interest ratio (SOIR) of 0.47, showing call open interest in the front three-months' series of options more than doubles put open interest. In fact, call open interest overall is at an annual high, with 23,665 contracts outstanding. 

Seeing the largest increase in open interest during the past 10 days was the September 135 call, and was one of several strikes in the front-month series to see buy-to-open action -- albeit amid relatively low absolute volume. With the September series set to expire at the close tomorrow, a number of traders bet on more upside for BLUE stock through the end of this week. 

The October series has also been also popular. Most notably, the deep out-of-the-money October 150 call saw a notable rise in open interest, and some buy-to-open activity has been confirmed. Those opening long positions here are betting on bluebird bio shares rising another 12.8% -- and into territory not seen since August 2015 -- before the contracts expire at the close on Friday, Oct. 20. 

Options volume is accelerated today, too. At last check, puts and calls are both running at three times the expected pace. On the call side, the aforementioned September 135 strike is seeing the most action, while the most popular put is the October 115 strike, where it looks like new positions are being purchased. 

Interestingly, it's still a good time to buy short-term options. For instance, the equity's 30-day at-the-money implied volatility of 54.7% sits only 9 percentage points from an annual low. This points to tame volatility expectations for near-term contracts. Add this to the fact that BLUE's Schaeffer's Volatility Scorecard (SVS) stands at an elevated 94, meaning the stock has tended to make outsized moves over the past year relative to what the options market has priced in.

An unwinding of short interest could go a long way in helping bluebird bio stock bulls. Despite the shares' strong showing on the charts, short interest represents almost 19% of the total available float. Going by average daily volumes, this represents almost nine days' worth of buying power. 

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