Call Options Hot as Akorn Stock Nears Bottom of Nasdaq

AKRX options traders are targeting a key technical level

Aug 23, 2018 at 2:51 PM
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The shares of Akorn, Inc. (NASDAQ:AKRX) are trading near the bottom of the Nasdaq today -- down 21.7% at $13.96 -- after the judge ruling on the generic pharmaceutical firm's legal dispute against Fresenius (FMS) reportedly said he's "got a lot to do before I decide this case." Akorn is suing the German-based medical company for ending a $4.7 billion merger agreement in late April, citing data integrity concerns.

It's already been a rough year for AKRX, which is now staring up at a 54% deficit for 2018, due largely to a 38.4% single-session drop on Feb. 27 -- its worst day on record. More recently, the stock has been churning beneath the round $20 mark, site of its pre-bear gap highs from April, and fell to a six-year low of $10.76 in early May.

akrx stock daily chart aug 23

Nevertheless, AKRX options traders at the major exchanges have been loading up on long calls over puts at an accelerated clip in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day call/put volume ratio of 4.21 ranks in the 91st annual percentile.

It's a similar setup in today's trading, with more than 18,000 Akorn calls on the tape so far -- four times what's typically seen -- versus just over 13,000 puts. Speculators may be purchasing new positions at the September 20 and 22.50 calls, the equity's most active options so far today.

While it's possible call buyers are betting on a big bounce, it's also likely short sellers are using the options to hedge against any upside risk. Although these bearish bettors are sidelined for the time being -- AKRX is short-sale restricted for the rest of this week's trading -- a healthy 11.6% of the stock's float is dedicated to short interest.

Whatever the reason, it's getting pricey to buy premium on AKRX. the stock's 30-day at-the-money implied volatility of 231.6% ranks in the 99th percentile of its 12-month range, meaning short-term options are pricing in elevated volatility expectations at the moment.


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