Putting aside preconceptions

  • Unusual option activity in TNDM on Tuesday
  • Puts outnumbered calls by more than 5-to-1
  • Stock higher on day, near top of recent range

Traders who saw heavy put options trading in Tandem Diabetes Care (TNDM) yesterday but didn’t click through to see the details may have simply thought the stock was getting roughed up a bit by the bears. After all, that was the case with many of the stocks on the unusual put volume and high put-call ratio scans.

But a quick check of TNDM’s options chain showed traders were actually getting out of some big positions in the $110 and $111 puts expiring on October 9:

Chart 1: Tandem Diabetes Care (TNDM) October 9 put options. TNDM options chain. Traders close out put positions.

Source: Power E*TRADE

How do we know they were getting out? Because the volume in each contract was more than 1,000, but the open interest (number of open trades) was only 14 for the $110 puts and 24 for the $111 puts. If traders were getting into new positions, the open interest would have been at least as high as the volume.

In other words, traders who were already long these puts decided to pull the plug yesterday.

Given the stock was up nearly 4% in early trading (on a down day for the broad market), it’s easy to speculate that some put holders were feeling pinched. With a little more than a week until those options expired, it’s possible yesterday was the straw that broke the camel’s back, but the following chart shows TNDM’s latest upswing was just one portion of what has been many months of mostly upside pressure:

Chart 2: Tandem Diabetes Care (TNDM), 2/25/20–9/29/20. Tandem Diabetes Care (TNDM). Consolidation near highs.

Source: U.S. Census Bureau

Yesterday’s rally pushed shares close to the top of a nearly one-month trading range—the top defined by the September 2 high of $116.89, at which point TNDM was up 147% from its March low.

Tandem, which specializes in products for diabetes patients (insulin pumps, glucose monitors, etc.), also reportedly got some renewed attention from hedge funds in Q2 after a dip in the first quarter.1

Enough to keep squeezing bears? Perhaps. TNDM made a run at its early-September highs two weeks ago and retreated. But many short-term traders like to watch for stocks that consolidate near highs, since their ability to remain at elevated price levels can sometimes set the stage for an upside breakout.

That said, many of the same traders may choose to enter on a pullback toward the bottom of the range, even though that sometimes means missing out if the stock rallies immediately.

Market Mover Update: Recent IPO BigCommerce (BIGC) has shown some signs of life since getting knocked down by the market’s September swoon—the stock surged nearly 12% yesterday and is up more than 25% from its September 21 low. Fastly (FSLY) rallied more than 9% to a four-week high yesterday (and landed on the LiveAction scan for largest positive net deltas, too).

Today’s numbers (all times ET): ADP Employment Change (8:15 a.m.), GDP (8:30 a.m.), Corporate Profits (8:30 a.m.), Chicago PMI (9:45 a.m.), Pending Home Sales Index (10 a.m.), EIA Petroleum Status Report (10:30 a.m.).

Today’s earnings include: Enerpac Tool (EPAC).


Click here to log on to your account or learn more about E*TRADE's trading platforms, or follow the Company on Twitter, @ETRADE, for useful trading and investing insights.  

1 InsiderMonkey. Hedge Funds Are Buying Tandem Diabetes Care Inc (TNDM) Again. 9/15/20.

What to read next...

Consulting firm’s options volatility presents traders with choices about how to play a key stretch of price action.

Broad market loses ground for fourth week as traders get ready for what promises to be an action-packed October.

Did earnings sell-off total car dealer, or just give it an unsightly scratch?

Looking to expand your financial knowledge?