Options Update: pSividia Calls Heat Up, Despite FDA-Related Drug Woes


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The Food & Drug Administration (FDA) declined to approve an application for experimental eye drug Iluvien - a joint venture between Alimera Sciences Inc. ( ALIM ) and pSividia Corp. ( PSDV ) - in its current form, and requested additional safety and efficacy data from two late-stage trials. As a result, the shares of both ALIM and PSDV have tumbled today, though the duo's plans to resubmit the marketing application next quarter may be behind the ramped-up affinity for short-term calls on the latter stock.

So far today, PSDV has seen almost 1,100 calls cross the tape - more than 24 times its expected daily call volume, and about five times the number of PSDV puts exchanged. Most popular has been the January 2011 7.50 call, which has seen more than 400 contracts change hands. Meanwhile, the security's January 5 and 10 calls have each seen close to 300 contracts traded. What's more, the majority of the front-month calls have crossed at the ask price, pointing to buyer-initiated activity.

PSDV short interest From a broader standpoint, though, today's preference for seemingly bullish bets runs counter to the sentiment currently surrounding PSDV. The equity's Schaeffer's put/call open interest ratio (SOIR) of 0.40 ranks in the 63rd percentile of its annual range, suggesting that short-term speculators are more skeptically skewed than usual toward the drug developer. Plus, short interest on the stock practically doubled during the past month, and now represents nearly three sessions' worth of pent-up buying demand.

As alluded to earlier, the shares of PSDV have backpedaled significantly in the first half of the session, giving up 21.4% to flirt with the $5 level, at last check. As such, the stock has surrendered its perch atop its 10-week moving average - a trendline that's contained all but one of PSDV's weekly closes since mid-September - but appears to have found a security blanket atop its 20-week moving average. However, this longer-term trendline acted as a staunch technical barrier for the equity during the middle months of 2010, so a weekly breach of support here could spell even more trouble for the shares.

Weekly chart of PSDV since May 2010

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This article appears in: Investing , Options
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