Akebia Therapeutics Inc AKBA shares are up 49.6% in the past week, but at least one larger option trader is betting on more upside for the biotech company in the next month.
The Trades
On Tuesday morning, Benzinga Pro subscribers received an option alert related to an unusually large Akebia trade.
At 8:52 a.m., a trader bought 606 Akebia call options with a $5 strike price expiring on Dec. 20 near the ask price at 45.1 cents. The trade represented a $27,330 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 modest size of Tuesday’s Akebia option trade by institutional standards, it is unlikely to be institutional hedging.
Akebia Earnings Setup
The huge rally in Akebia shares and the call buy on Tuesday come after CEO John Butler and board member Adrian Adams each purchased 50,000 shares of stock last week at prices ranging from $3.41 to $3.44. The large option trader may see the insider purchases as a signal good news is on the way with Akebia’s Phase III trial data of Vadadustat, although those results are not expected out until 2020.
Akebia also got some good news from Wall Street earlier this month when H.C. Wainwright reiterated its Buy rating and adjusted its price target to $16, suggesting more than 200% upside.
Even after the recent rally, the strike price of the calls purchased on Tuesday suggests more than 14% additional upside for Akebia in less than a month given the lowest break-even prices of the calls is $5.45.
Benzinga’s Take
As with any biotech stock with upside hinging on data and/or regulatory approval, Akebia remains a high-risk/high-reward speculative investment. The good news for momentum traders is that even after the nearly 50% gains in a week, Akebia is still well below its 52-week high of $10.45.
Do you agree with this take? Email feedback@benzinga.com with your thoughts.
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