Stock pauses, options don’t

  • BHVN has been range-bound since hitting record high on June 18
  • Big print in September call options yesterday
  • Stock in small-cap, bio sweet spot?

A rally to record highs, followed by a consolidation and, yesterday, a big print on the options tape.

Now what?

That was small-cap biopharma stock Biohaven’s (BHVN) situation yesterday morning when 500 September $80 call options changed hands, landing BHVN on the high call-put ratio LiveAction scan:

Chart 1: LiveAction scan: Highest call-put ratios. Unusual options activity. 147 calls traded for every put.

Source: Power E*TRADE

Despite that 147-to-1 call-put ratio, 500 contracts may not sound like a big deal. But when you consider that around noon ET Biohaven’s total options volume for all other strike prices expiring in July, August, and September was less than 40 (and the stock had traded less than 120,000 shares), it was pretty epic.

Did at least some of that volume represent bullish bets on the stock? If so, such traders may have been responding to a few market factors:

Recent small-cap stock strength: The Russell 2000 (RUT) may be down more than any other major US stock barometer this year, but it’s been the second-strongest index (trailing only the Nasdaq 100) since the market bottomed in March.

Bio strength: Biotech and biopharma stocks like BHVN have also been one of the hotter industry groups over the past three months.

Busy drug pipeline: Like many small-cap biopharma companies, BHVN has been operating in the red as it develops products (it began trading in 2017). Unlike some others, it has more than one drug in late-stage trials, and one that’s already on the market and profitable (migraine treatment rimegepant).1

Or maybe traders just noticed the stock’s recent price action—a roughly 167% rally off its March lows, including a run to a new all-time high of $76.40 in mid-June:

Chart 2: Biohaven Pharmaceuticals (BHVN), 3/12/20–7/7/20. Biohaven Pharmaceuticals (BHVN) price chart. Hanging around the highs.

Source: Power E*TRADE

But BHVN has been locked in a trading range since tagging that record high—hovering just below it and just above the support level of its early-June highs. (This volatility downtick, by the way, may make call options more attractive to potential bulls, since lower volatility often translates into relatively cheaper options prices.)

While experienced traders would certainly be aware that no stock would be immune to another market-wide sell-off, there may be some who see the potential for a near-term momentum move if a range-bound stock like BHVN can break out of its consolidation with its fundamental tailwinds intact.

Which leads to one final point: If Biohaven sounds familiar, you may have read about it here in February, when a potential bear-trap rally got derailed by the coronavirus sell-off—a good reminder to always keep your eyes peeled for a head fake when prices look poised break out of a consolidation.

Market Mover Update: Electric vehicle makers Nikola (NKLA) and Workhorse (WKHS) downshifted yesterday—both fell more than 10% intraday—while Nio (NIO) and Tesla (TSLA) added to their recent rallies (see “Options overdrive”).

Still has its FAANGs: Netflix (NFLX) took a bite out of $500 for the first time yesterday, trading as high as $504.82 before pulling back.

Today’s numbers (all times ET): EIA Petroleum Status Report (10:30 a.m.), Consumer Credit (3 p.m.).

Today’s earnings include: Bed Bath & Beyond (BBBY), MSC Industrial Direct (MSM), Simply Good Foods (SMPL).


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1 The Motley Fool. 3 Reasons Why Biohaven Pharmaceuticals' Stock Is Taking Off. 5/28/20.

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