Call Buyers Pile On Dynavax Stock After Upbeat Drug News

Analyst: The data 'beat our homerun scenario'

by Patrick Martin

Published on Apr 16, 2018 at 12:27 PM

In what's been a wild day for drug stocks, Dynavax Technologies Corporation (NASDAQ:DVAX) shares are climbing, up 4.9% to trade at $20.72, getting a halo lift from drug name Merck (MRK), which reported upbeat data on its cancer drug, Keytruda. Dynavax also reported encouraging data with its own cancer treatment, SD-101, amid the annual American Association for Cancer Research meeting. In fact, J.P. Morgan Securities Analyst Anupam Ramam said the overall response rate "beat our homerun scenario." In the wake of the upbeat news, options traders are loading up on DVAX calls.

At last check, over 2,600 calls have traded hands today -- four times the average intraday pace, with volume pacing for the 94th annual percentile. The April 20 call is garnering the most attention, with potential buy-to-open activity spotted, indicating options traders are banking on DVAX stock to keep climbing above $20 through Friday, when the options expire.

Dynavax calls have been overwhelmingly popular for some time now. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows DVAX with a 10-day call/put volume ratio of 10.56, ranking in the 76th percentile of its annual range. This shows that during the past two weeks, DVAX calls have been purchased over puts at a much faster-than-usual clip.

Echoing this, DVAX stock's Schaeffer's put/call open interest ratio (SOIR) of 0.16 is in the lowest percentile of its annual range, implying that short-term traders are much more call-heavy than usual right now.

Dynavax found itself on a list compiled by Schaeffer's Quantitative Analyst Chris Prybal of stocks that have seen their short interest increase at least 10% year-to-date even while the stock price increased. And in DVAX's case, the 6.68 million shares sold short represents 12% of the stock's total available float. Against this backdrop, some of the recent call buying -- particularly at out-of-the-money strikes -- could be attributable to shorts seeking an options hedge.

DVAX stock has more than quadrupled since its May 8 low of $5.15, gapping higher in August. Since then, however, the shares pulled back to bounce off their 200-day moving average, and earlier touched a new 2018 high of $22.80. A short squeeze could add fuel to the equity's fire.

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