Invitae (NVTA) is a genetic testing company that you may not have heard of, in the same sector as Pacific Bioscience (PACB), and BioNano Genomics (BNGO). Here’s the weird thing: They all pumped last week — none more than Invitae (NVTA). Here’s one more weird thing: Right before shares of NVTA tripled intraday, someone bought 4,300 far OTM call options expiring this Friday. Those options, originally bought for as little as $0.05 per contract, ultimately short squeezed as much as 8,587% on the same day they were purchased.
Unusual Options Activity in Invitae on August 10th
Source: Market Rebellion’s Unusual Options Activity Service
During after-hours trading last Tuesday, Invitae issued a lukewarm earnings report — the CEO was stepping down, the company had accrued $2.5B in net losses (aka a loss of $10.87 per share), and gross profit margins had fallen more than 35% year-over-year.
On August 10th, the morning following Invitae’s earnings report, Market Rebellion’s unusual options activity service identified the purchase of 4,300 $5-strike call options expiring at the monthly August expiration (August 19th; this friday). The trade was made with NVTA trading between $2.75 and $3.78, and cost the buyer roughly $32,250. At the time, these options were far out-of-the-money, trading for as little as $0.05 each, bought above the open interest (4,300 vs 1,797), and had a short amount of time remaining until expiration. AKA: Three things we love to see when hunting for unusual options activity.
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Invitae Takes a Trip to the Moon
On the same day that those call options were bought, shares of Invitae took off — rocketing as much as 216% higher after the unusual call buying began. But that 216% gain in shares of Invitae was nothing compared to the move in the options. Those $5-strike calls that were bought for as little as $0.05 ($5) per contract soon traded as high as $4.40 ($440) — AKA, 8,587% higher than their initial trade price. As a result, those 4,300 contracts were at one point worth as much as $1,892,000. But as we discussed above, Invitae wasn’t the only genomics stock with a high short-interest to soar last week.
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Sympathy Moves: Pacific Bio Science (PACB) and BioNano Genomics (BNGO)
The following day, August 11th, two companies in the same space (genomics) with a similar market cap and short interest went on runs of their own.
Pacific BioSciences (PACB) Briefly Pumps 100% Between 8/10 and 8/11
BioNano Genomics (BNGO) Plays Copycat — Nearly a Mirror Image of PACB’s Chart
The Bottom Line: THIS is Why We Follow the Smart Money
Time and time again Market Rebellion finds head-scratching, “Why did they buy this?” institutional trades that turn into head-scratching, “Why did this just pump?” price action. It isn’t rocket science: if you’re a trader (or an institution, or a hedge fund) that’s willing to risk a lot of cash on a high-risk trade, it’s very likely that you’ve got a good reason to take that bet. Likewise, if you’re someone who has tens-of-thousands (or even hundreds-of-thousands) of dollars to risk on a short-duration trade, you’ve probably got an equally large amount of cash to burn on research.
The research that likely goes into making these trades, combined with the information that unusual option activity provides (for example, the above trader expected Invitae to reach at least $5, by August 19th, and they paid between $0.05 and $0.10 to make the prediction), are two key reasons why we follow the “smart money”.