Converging options highlight biotech stock

On Wednesday morning, small-cap biotech AnaptysBio’s (ANAB) options open interest (OI) was a little more than 16,000, nearly 16 times the daily average of 1,038 contracts:

More than half of those positions were in three contracts, the December $35 puts (left) and the January $40 and $50 calls (right):

Just because the contracts all have OI of 3,500 doesn’t necessarily mean they’re connected. However, one detail—they all had identical volume on two dates, August 26 (1,678 contracts) and September 12 (1,421 contracts)—suggests they could be part of a larger position or strategy.

Determining the purpose of that position is, of course, a different story. To some, the identical January $40 and $50 call positions may have appeared to represent a large bull-call spread—i.e., long the $40 call and short the $50 call, with the position’s profit peaking (at expiration) at the higher strike price. With ANAB trading roughly between $36.50–$38 on Wednesday, that means a trader would need the stock to rally anywhere from 7%-32% for the position to produce a profit at expiration:

That may seem like a modest goal to ANAB bulls, given average Street analyst target for the stock is $57.44.¹ (The stock, which began trading in January 2017, hit an all-time high of $134 in February 2018.) Regardless of whether this interpretation of the call positions is accurate, it is definitely complicated by the presence of the December $35 put positions.

A trader who bought these options could potentially profit by a relatively modest decline in the stock—but that would seem to conflict with the outlook of a trader using calls to benefit from a stock rally. On the other hand, shorting these options would represent another bullish position, since the puts will probably lose value over time if the stock rallies. Then there’s the issue of these options expiring a month earlier than the calls.

Finally, while the options positions discussed here may not seem particularly large to some traders, ANAB is a lightly traded stock, with average daily volume of less than 350,000. It may be difficult to decipher the intention of the positions, but by all appearances, a large trader has taken interest in the stock.

Note: AnaptysBio is currently scheduled to release earnings in early November.

Market Mover Update: The S&P 500 (SPX) jumped to an all-time intraday high after the Fed announced a 0.5% rate cut yesterday. However, it gave back a good portion of the day’s rally during Fed Chair Jerome Powell’s post-announcement press conference, which included his observation that it would be a mistake to interpret Wednesday’s larger cut as an indication of the Fed’s likely pace going forward.

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¹ TipRanks. AnaptysBio (ANAB) Stock Forecast & Price Target. 9/18/24.