Elan has been in the dumps since a massive collapse in 2008, but
now the bulls are coming back.
optionMONSTER's Heat Seeker tracking system detected a surge of
call buying in the Irish drug maker yesterday as investors
positioned for a springtime rally. The May 6s were the most active
strike, trading more than 20,000 times against open interest of
just 50 contracts. Premiums climbed from $1 to $1.30 throughout the
session, but most of the large blocks priced at the lower end of
Almost 6,000 May 7 puts were also sold for $0.40, this time against
previous positioning of just 20 contracts. ELN was trading for
$6.90 when most of the puts crossed our monitors, so they were in
the money, which is noteworthy because it's a highly leveraged way
to play for upside.
The shares ended the session with a 5.15 percent gain at $7.15, so
those puts are now out of the money. If ELN stays above $7 or
climbs further, those puts will dwindle to zero.
The stock has been battling its way higher since the later summer,
although for the last three months has been consolidating those
gains. Yesterday's session, with options volume 32 times greater
than average and share turnover more than twice the normal amount,
suggests it may be starting to attract interest once again.
The recent gains also seem to have improved ELN's technical
position because its 50-day moving average is now above its 100-day
moving average (black and blue lines on chart at right,
respectively) and its 100-day moving average is above the 200-day
moving average (purple line on chart). That configuration is often
necessary before a stock can advance.
Its 200-day moving average has also started to climb, another
potentially bullish pattern that suggests the longer-term trend is
There are also fundamental reasons why investors may be warming to
ELN. While its loss was wider than expected the last time it issued
results on Feb. 8, revenue was significantly ahead of consensus.
Also in January, the company announced a 7 percent price increase
for its Tysabri multiple sclerosis drug, which accounts for more
than 80 percent of its revenue. Last month ELN also announced that
European regulators approved the first medicine that will use its
NanoCrystal drug-delivery technology.
(A version of this post appeared on InsideOptions yesterday.
Chart courtesy of tradeMONSTER.)
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