Market Overview

Here's How Large Option Traders Are Playing Gilead Following Latest COVID-19 Trial Data

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Here's How Large Option Traders Are Playing Gilead Following Latest COVID-19 Trial Data

Shares of Gilead Sciences, Inc. (NASDAQ: GILD) traded lower by 4% on Thursday amid broad market weakness following a spike in U.S. coronavirus cases.

Gilead’s remdesivir is one of the most advanced potential treatments for COVID-19, but several options traders made large bets on Thursday that the stock is headed lower.

The Gilead Trades

On Thursday, Benzinga Pro subscribers received nine alerts related to unusually large Gilead option trades. Here are the largest:

  • At 9:33 a.m. ET, a trader sold 1,000 Gilead call options with a $75 strike price expiring on June 19. The contracts were sold near the bid price at $2.11 and represented a $211,000 bearish bet.
  • At 9:34 a.m. ET, a trader sold another 1,309 of the same Gilead call options with a $75 strike price expiring on June 19. The contracts were sold near the bid price at $1.87 and represented a $244,783 bearish bet.
  • At 10:19 a.m. ET, a trader bought 800 Gilead put options with a $95 strike price expiring on Aug. 21. The contracts were purchased near the ask price at $21.165 and represented a $1.69 million bearish bet.
  • At 11:19 a.m. ET, a trader sold 1,000 Gilead call options with an $80 strike price expiring on July 17. The contracts were sold at the bid price at $1.761 and represented $176,100 bearish bet.

Of the nine total large Gilead option trades on Thursday morning, only one represented calls purchased near the ask, a trade typically seen as bullish. Seven trades were calls sold at the near the bid or puts purchases at or near the ask, trades typically seen as bearish. One trade was executed near the midpoint of the bid-ask spread, which is typically considered neutral.

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 large size of the largest Gilead option trades, there’s certainly a possibility they could be an institutional hedge on a large position in Gilead stock.

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Is Remdesivir The Golden Goose?

Thursday’s large option trades came just two days after a study published in medical journal Nature showed remdesivir prevented lung disease in macaques infected with COVID-19. Remdesivir is still being tested in humans, but it has already been cleared for emergency treatment in severely ill patients in the U.S., India and South Korea.

On June 1, Gilead said its Phase 3 trial of remdesivir demonstrated some effectiveness in treating patients that had “moderate” COVID-19 infections. Gilead said patients treated with remdesivir for five days were 65% more likely to demonstrate improvement after 11 days than a control group. The stock initially traded lower following the report given the drug's effectiveness still seems somewhat unclear.

The bearish option traders on Thursday must be skeptical of remdesivir. The $1.69 million trade puts has a break-even price of $73.83, suggesting Gilead shares will be priced lower by August 21 than they are today.

Benzinga’s Take

The entire market seems somewhat skeptical that remdesivir will be a miracle cure for COVID-19. Given the massive global market for a coronavirus treatment, Gilead shares are up just 14.1% year-to-date.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

 

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