Rocket Pharmaceuticals (NASDAQ:RCKT), a biotechnology company specializing in curative gene therapies for diseases with high unmet needs, witnessed a remarkable surge in its share price during the midweek session, closing nearly 39% higher than the previous day. However, despite this impressive short-term performance, RCKT has only gained about 11% for the year. This raises the question of what lies ahead for Rocket Pharmaceuticals: Will it fulfill its earlier promises or continue its relatively stagnant performance since its debut in 2015?
One way to gain insights into RCKT’s future trajectory is by examining the implications of its unusual stock options volume. Such volume can offer clues about market sentiment and investor expectations. In this case, the surge in RCKT’s stock price may suggest a bullish outlook.
Fundamentally, this outlook is not unfounded. Stocks don’t typically experience nearly 40% gains in a single day without reason. The catalyst for Rocket’s recent surge was the Food and Drug Administration’s (FDA) approval of its Phase II pivotal trial for a treatment targeting Danon disease, a rare inherited condition that lacks an FDA-approved cure. This approval opens up a significant opportunity for Rocket, as the disease affects thousands of patients in the U.S. and Europe.
In conjunction with the FDA approval, Rocket conducted a public offering of 7.8 million shares of its common stock at $16 per share, providing funds to support the aforementioned trial.
While the general consensus appears positive for RCKT stock, institutional investors seem to have a different perspective.
Rocket Stock: A Deceptive Case?
After the close of the September 13th session, RCKT stock stood out as one of the top unusual options volume highlights in Barchart’s screening tool. The volume during the midweek session was 1,374.28% higher than the trailing one-month average, making it the third-most unusual option for the session. Specifically, total volume reached 18,915 contracts compared to open interest of 8,453 contracts, indicating a sudden surge in demand for RCKT stock options.
In terms of call and put options, there was a clear preference for calls, with call volume at 13,499 contracts and put volume at 5,416 contracts, resulting in a put/call volume ratio of 0.40, which appears to favor the bulls. Additionally, the put/call open interest ratio stands at a low 0.13, suggesting optimism among investors.
Analyzing the implied volatility (IV) curve of RCKT stock reveals a rising linear trend from lower to higher strike prices, ranging from 79% to 195%. Typically, a volatility smile would indicate risk coverage at both extremes. However, in this case, traders seem to anticipate heightened activity at rising strike prices rather than lower ones.
Despite the apparent bullishness in options trading, Fintel’s options flow data, which focuses on substantial block trades often made by institutions, tells a different story. While there was significant activity in call options during the September 13th session, particularly for the Oct 20 ’23 17.50 Call and the Jan 19 ’24 25.00 Call, these were sold calls. This means that the traders who wrote these contracts would benefit from a declining RCKT stock price.
A Conflicting Picture
The Barchart Technical Opinion indicator rates RCKT stock as a 16% weak sell, suggesting a bearish outlook. Although some longer-term indicators may have turned positive, the overall consensus remains pessimistic.
Interestingly, this view contradicts Wall Street’s perspective on Rocket Pharmaceuticals. Among 12 experts, RCKT stock is rated a strong buy, with 11 strong buy ratings and one moderate buy. Furthermore, the mean price target for RCKT stands at $54, implying more than 154% upside potential. Even the lowest price target is $39, indicating an 83.7% growth potential.
Given the apparent disconnect between institutional investors and Wall Street analysts, investors should exercise caution when considering RCKT stock. Opportunities that seem too good to be true often require a closer look to uncover hidden complexities and risks.
Featured Image: Freepik @ DCStudio
Author Faith Yakubu