Sentiment shift?

  • APLS down more than 8% from early-May record high
  • Shares still up more than 80% since January
  • Traders cutting back on call options positions?

One of the challenges of the markets is that they never stand still. A big development today may be offset by a different one tomorrow, and trends only emerge over time.

Compounding that challenge is what different data may appear to represent on the surface vs. what they reveal when you dig into the details.

Recent activity in Apellis Pharmaceuticals (APLS) highlights this dynamic. The stock has pulled back the past three weeks, but it’s still up more than 80% from its early January lows:

Chart 1: Apellis Pharmaceuticals (APLS), 12/23/22–5/25/23. Apellis Pharmaceuticals (APLS) price chart. Pullback from record high.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

The rally was highlighted by a 16% jump on April 3 amid reports the biotech company was attracting industry attention as a potential acquisition,1 along with assertions it preferred to remain independent.2 Then, on May 5, the stock hit a record high after releasing earnings, although it’s since fallen more than 9%.

Regardless, the rally has been accompanied by a buildup in call options positions. As of Thursday, open interest (OI) in calls outnumbered the OI in puts (in the June, July, and October expirations) nearly two to one, and on Wednesday, APLS had one of the day’s highest call-put ratios, with roughly 88 calls trading for every put.

Almost all of Wednesday’s call volume was in the June options, but comparing the OI levels from Wednesday and Thursday showed that traders were closing existing positions more than they were opening new ones. The two strikes with the heaviest trading on Wednesday, the $100 and $105 calls, had lower OI on Thursday:

Chart 2: APLS June call options. Unusual options activity. Traders downsized largest call positions.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

Also, while call OI in the June options was nearly four times put OI on Thursday (16,855 contracts vs. 4,286 contracts), things were much more balanced in the July and October expirations, which had OI call-put ratios of only 1.4 and 1.3, respectively.

In other words, while traders certainly were more heavily invested in calls in the June expiration, they appeared to lighten up on those positions on Wednesday, while any bias toward calls was much less evident in the next two expirations. This week’s shift may not have been dramatic, but it also didn’t fit neatly into a bullish narrative.

But the past two days won’t tell the entire story. The reality is that traders looking to options for insights on market sentiment need to keep tracking positions to determine if a burst of activity is just “noise” or possibly something more significant.

Market Mover Update: NovoCure (NVCR) continued to stall at resistance. The stock fell more than 3% intraday on Thursday to its lowest level in a week (see “Stock pauses, options signal move”). Edwards Lifesciences (EW) fell more than 3% intraday to a nearly two-month low (see “The right spread at the right time”). July WTI crude oil futures gave back all of their big Tuesday–Wednesday rally, falling more than 4% intraday and briefly trading below $71 before bouncing.

Today’s numbers include (all times ET): Durable Goods Orders (8:30 a.m.), Advance International Trade in Goods (8:30 a.m.), Personal Income and Outlays (8:30 a.m.), Advance Retail and Wholesale Inventories (8:30 a.m.), Consumer Sentiment (10 a.m.).

Today’s earnings include: Big Lots (BIG), Buckle (BKE).


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1 US Biotech Firm Apellis Is Said to Attract Takeover Interest. 4/2/23.
2 Reuters. Biotech firm Apellis attracts takeover interest, Bloomberg reports. 4/2/23.

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