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Option Trader Bets $2.5M On Biogen After FDA's Favorable Alzheimer's Drug Support

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Option Trader Bets $2.5M On Biogen After FDA's Favorable Alzheimer's Drug Support

Biogen Inc (NASDAQ: BIIB) shares jumped more than 40% on Wednesday after the company received a favorable FDA briefing related to the company’s investigational Alzheimer's drug aducanumab.

Despite the huge bullish move, at least one trader is speculating Biogen’s big run may be just getting started ahead of Friday’s aducanumab Adcom meeting.

The Biogen Trades: On Wednesday morning, Benzinga Pro subscribers received three alerts related to unusually large Biogen option trades:

  • At 10:25 a.m. ET, a trader bought 400 Biogen call options with a $270 strike price expiring on Friday. The contracts were purchased at the ask price of $64 and represented a $2.56 million bullish bet.
  • At 10:40 a.m. ET, a trader bought 224 Biogen call options with a $300 strike price expiring on Jan. 15. The contracts were purchased at the ask price of $39.381 and represented an $882,134 bullish bet.
  • At 12:22 p.m. ET, a trader bought 350 Biogen call options with a $400 strike price expiring on Jan. 15. The contracts were purchased at the ask price of $14 and represented a $490,000 bullish bet.

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 Biogen option trades, there’s certainly a possibility they could be an institutional hedge on a large position in Biogen stock.

Related Link: How Large Option Traders Are Playing PayPal Following Earnings Dip

Big Hopes For Aducanumab: Briefing documents prepared by Biogen and the FDA ahead of Friday’s Adcom meeting suggest primary evidence of effectiveness in aducanumab’s Study 302 and supporting evidence of effectiveness in Study 103.

Biogen had initially halted its Phase 3 testing of aducanumab due to discouraging early results. However, last year the company decided to restart its trials. Biogen has apparently gotten enough positive results at this point to submit the drug for FDA approval, and investors appear to be taking the new briefing as an extremely positive sign.

Investors won’t know for sure what kind of potential aducanumab has until Friday at the earliest, but an approval or path to approval would go a long way to reassure investors that Bigen has a strong future as its legacy drug sales decline over time.

On Wednesday, Bank of America analyst Geoff Meacham urged investors not to jump to any conclusions ahead of Friday’s meeting.

“Biogen has long-described the FDA’s support as meaningful (which would seem to be validated today), and together with its acceptance of the BLA with Priority Review/ expedited review, bulls have pointed to a clear path to approval, despite the dataset’s widely recognized flaws,” Meacham said.

 

Benzinga’s Take: All three of the unusually large Biogen option trades on Wednesday were bullish. The $2.56 million call purchase has a break-even price of just $334, suggesting the trader will make a more than 18.7% profit on the trade even if Biogen shares simply maintain their current level through the end of the week.

 

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