Momenta Pharmaceuticals is starting to rally, and the option
action is looking bullish.
Our Heat Seeker tracking program detected a surge of volume in the
January 16 calls, which changed hands more than 7,300 times. The
trades were scattered throughout the day, with a strong buying
trend in evidence. Premiums rose from $1.30 to close at the highs
MNTA varied only by about $0.30 during that time, which indicates
that a strong demand for the options, rather than a move in the
share price, accounted for the higher premiums.
The stock ended the session up 2.87 percent to $17.10 and is up 14
percent in the last week. The drug maker, which just crossed the
threshold from losses to profitability, has been on a wild ride in
the last year, roughly doubling in late July after the Food and
Drug Administration approved its generic version of Sanofi-Aventis'
Lovenox anti-clotting medicine.
It then surrendered most of those gains and spent the rest of 2010
consolidating above its 200-
day moving average (purple line on chart). Each time it attempted
to rally, the bears stepped in.
The steady selling drove short interest to about 26 percent of
MNTA's float, which could cause forced buying and a potential
squeeze if the shares continue higher.
Yesterday's call buying may have been the work of short sellers
desperately looking to hedge their bearish positions or of bulls
looking for the stock to rally. Regardless, the activity followed
an implied volatility spike last week, which means that some
traders have been looking for the shares to start moving.
(Chart courtesy of tradeMONSTER)