Market Overview

Large Option Trader Buying Nektar Calls Following Stock Crash

Large Option Trader Buying Nektar Calls Following Stock Crash

Nektar Therapeutics (NASDAQ: NKTR) crashed more than 30% Friday after the company reported a huge second-quarter sales miss. Nektar also said manufacturing problems may have impacted the results of several studies of its NKTR-214 cancer treatment drug, which it has been testing in combination with Bristol-Myers Squibb (NYSE: BMY) drug Opdivo.

Nektar shares are now down 64.6% overall in the past year, but it appears at least one large option trader is betting Friday’s sell-off is an overreaction.

The Trades

On Friday, Benzinga Pro subscribers received options alerts related to two large Nektar option trades.

At 8:48 a.m. ET, a trader bought 516 Nektar call options with a $20 strike price expiring on Aug. 16 at the ask price of 64.5 cents. The trade represented a bullish bet worth $33,282 that Nektar shares will close next week back above $20.64.

About an hour later, potentially the same trader bought 500 Nektar call options with a $20 strike price expiring on Sept. 20 at the ask price of $1.90. The trade represented a bullish bet worth $95,000 Nektar will trade to at least $21.90 within six weeks.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively small size of the two trades by institutional standards, they are unlikely to be hedges.

See Also: How To Read And Trade An Options Alert

Market Overreacting?

Friday’s option trader seems to believe the huge sell-off in Nektar stock is overly pessimistic. The company provided few details about exactly how the bad batches of drugs impacted study data, but it said the FDA was aware of the issue when it granted NKTR-214 and Opdivo breakthrough designation in advanced melanoma.

SVB Leerink analyst Daina Graybosch said more information from Nektar would reassure investors.

“Biological support explaining why the bad lot (batch of drug) resulted in lower (effectiveness) would increase our confidence in the post-hoc analysis but, unfortunately, Nektar was not able to share details of what they have learned from the biology,” Graybosch wrote in a note.

CFRA analyst Colin Scarola cut his price target for Nektar from $40 to $35, but said NKTR-214 still has major long-term potential.

“Given the high level of uncertainty with NKTR's clinical stage drugs and its lack of current cash flow, however, we continue to recommend a Hold,” Scarola wrote.

If the two large call buys on Friday morning were executed by the same trader, that trader may see the disastrous earnings report as a near-term bottom for Nektar stock.

The stock traded around $19.85 per share at time of publication.

Latest Ratings for NKTR

Nov 2020SVB LeerinkMaintainsMarket Perform
Aug 2020SVB LeerinkMaintainsMarket Perform
May 2020OppenheimerMaintainsPerform

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