Pharma stock on call

  • ZGNX call options volume surged last week and yesterday
  • Huge positions remain in October options
  • Company coming off successful trials of key drug

A pharma company gets good news from clinical trials and options traders pile into calls.

That may sound like something that’s happened more than a few times in the COVID-vaccine space, but it also may describe what happened recently in Zogenix (ZGNX), which landed on yesterday’s LiveAction scan for high call options volume, trading more than seven times as many contracts as usual by noon ET.

But that was nothing compared to the numbers it put up last Friday, when it traded 77.5 times more than average:

Chart 1: LiveAction scan: Unusual call volume, 9/11/20. Call volume more than 77 times avg.

Source: Power E*TRADE

Here’s the rundown: Yesterday there were 20,000 open positions in the October $27 calls (roughly $49,400,000 worth of ZGNX), with volume of 1,000 by noon ET—serious numbers for a symbol that trades fewer than 300 call options, on average, per day. There were also 9,200 open positions in the January $30 calls, while the single biggest concentration of put positions was 1,000 of the deep-in-the-money January $60 contracts.

Who knows if the preponderance of calls represents bullish bets, portfolio protection (a stock hedge), or both. But net-net, it’s a whole lot of potential long ZGNX positions.

Zogenix is a small-cap pharma company that specializes in “orphan” drugs—treatments for rare or niche diseases that are often overlooked by pharma giants. Fifty years from now it may have dozens of successful treatments under its belt, but for now the ZGNX story appears to be riding on one product, the anti-seizure drug Fintepla, which targets a severe form of childhood epilepsy.

As it turns out, ZGNX, which received the all-important Food and Drug Administration (FDA) approval for Fintepla in June, got good news last week from its third phase III clinical trial, which confirmed positive phase l and phase ll results.1

The stock was up more than 2% most of yesterday, but the following chart shows it’s still battling back from the 70% hit it took during the COVID sell-off:

Chart 2: Zogenix (ZGNX), 1/9/20–9/14/20. Holding above the lows.

Source: Power E*TRADE

Although ZGNX has rallied around 39% since March (despite having drifted lower since June), it’s still much closer to those lows than its pre-COVID highs—potential upside that may have helped push hedge-fund participation to record levels in Q2.2

Interestingly, the Street’s average analyst price target for ZGNX is still around $463—some 86% above where it was trading yesterday. There’s no knowing how long it could take for the stock to get there, if it can at all. But unusual options activity like ZGNX’s in recent days is something traders tend to keep a close eye on. When a stock isn’t doing much, the options market can sometimes highlight the potential for renewed momentum.

Market Mover Update: For the second time in a week, the SPX rebounded after the Cboe Volatility Index (VIX) suggested trader fear levels had dropped even though the market had fallen to fresh lows. Although the SPX slid to its lowest level since early August on Friday, the VIX topped out at 29.73—far below its high on either September 4 or 8 when the SPX was higher. The SPX bounced back on Monday, rallying 1.9% intraday.

Today’s numbers (all times ET): Empire State Manufacturing Index (8:30 a.m.), Import and Export Prices (8:30 a.m.), Industrial Production and Capacity Utilization (9:15 a.m.), FOMC meeting starts.

Today’s earnings include: Adobe (ADBE), FedEx (FDX).


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1 Hedge Funds Have Never Been This Bullish On Zogenix, Inc. (ZGNX). 9/9/20.

2 Zogenix (ZGNX) Announces Positive Top-Line Results from Third Pivotal Phase 3 Clinical Trial of FINTEPLA in Dravet Syndrome. 9/9/20.

3 TipRanks. Zogenix Stock Forecast & Price Targets. 9/14/20.

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