Options Traders Load Up On VKTX Calls Ahead of Earnings

Viking Therapeutics reports earnings after the close tomorrow

Managing Editor
Jul 31, 2019 at 2:06 PM
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The shares of Viking Therapeutics Inc (NASDAQ:VKTX) are up 3.3% to trade at $7.93 today, as the biotech concern prepares for its second-quarter earnings report, set for after the close tomorrow, Aug. 1. Ahead of the event, VKTX's typically quiet options pits have come alive, with an emphasis on calls.

More specifically, VKTX has seen almost 13,000 call options change hands today -- 21 times what's typically seen at this point, and volume pacing for the 99th percentile of its annual range. Most of this action is centered around the November 9 and 11-strike calls, where spread activity is detected.

It appears the trader bought a 5,000 block of the November 9 calls for 70 cents, while simultaneously selling to open an equal amount of 11-strike calls for 25 cents each. This bull call spread was established for a net debit of 45 cents per pair of options (0.70 minus 0.25), or $225,000 total (net debit x 100 shares per contract x 5,000 spreads). The trader will turn a profit if VKTX is trading above $9.45 (bought call strike plus net debit) before the options expire on Friday, Nov. 15.

Despite the looming earnings, now is an attractive time to purchase premium on the security. This is based on its Schaeffer’s Volatility Index (SVI) of 50%, which ranks in the bottom percentile of its annual range.

Looking at earnings history, the equity has closed higher the day after earnings in three of the last six quarters -- including a 4.8% bump last August. The stock has averaged a 6% post-earnings swing over the past two years, regardless of direction, but this time the options market is pricing in an even wider reaction of 7.2% for Friday's trading. 

On the charts, Viking Therapeutics stock has struggled to break out in 2019, mostly trading within a tight range between the $9 level and the $7.65 level -- its year-to-date breakeven. Just overhead also sits the shares' 160-day moving average, a trendline that kept a lid on a breakout earlier this month.

Daily Stock Chart VKTX


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