Geron (NASDAQ: GERN) Options Activity Indicating A Potential Drop

Geron Corporation (NASDAQ: GERN) sold off nearly 3% today, on above normal trading volume. However, that’s not what caught our attention today. We were focused on the options market, as we saw more than 7.4 times options volume on the day.

And you know what else?

On an average day, Geron will trade approximately 360 puts and today we saw over 5k trade.

Now, if you have never heard of Geron Corporation before, it’s a biotech company that primarily specializes in the development and commercialization of therapeutics for oncology, such as imetelstat, telomerase inhibitor, and hematologic myeloid malignancies.

What we Know About Option Trades on GERN

The activity in the options was quite bearish. For example, there were two monster put buys around 10:40 AM EST. The first order was a sweep, in which one option trader bought 3,262 April 2 puts for $0.10 when the stock was trading at around $2.38 per share. This was when the spread was $0.00 at $0.10. Instead of trying to work the order and potentially getting filled at $0.05, the option player came in swept the contracts on display. Seconds later, they came back and bought 1,738 April 2 puts for $0.10.

The open interest on the April 2 puts was 2,853 contracts, the total number of those options that traded today, exceeded over 5K contracts. With that said, we can say that someone established a new position. Now, we are not 100% certain that these are a bearish bet or if someone is hedging a long position. However, with more than 20% short interest, and the fact that these puts were bought aggressively, it could mean someone is bearish on the name. It’s also worth noting that these options expire before the earnings date of May 4, 2017.

Now, in order for this option player to make money, they would need the stock to drop an additional 14% on the expiration date, just to break even. If these option players are correct, it could mean that we’ll see a drop in Geron Corp.

What You Need to Know About GERN

  • There was bearish put option activity in GERN, and 22.82% shares short.
  • GERN recently announced its 4Q2016 and FY2016 earnings results. Geron reported a net loss of 5 cents per share on revenue of $0.1M, while the consensus estimate was a net loss of 6 cents per share on revenue of $0.2M.
  • GERN’s revenue fell by 57.3%, when compared to its revenue in 4Q2015.
  • GERN has a 52-week range between $1.81 and $3.35.
  • Geron has a forward PE ratio of 221
  • The company had free cash flow of -$18M and a free cash flow per share of -$0.14.
  • GERN has a price-to-book ratio of 3.0 and a price-to-sales ratio of 58.6.

GERN

Source: TradingView

Bull Case

Geron has been up nearly 10% over the past three months, and some traders might be getting in for a momentum play. The stock also has a one-year target price of $4.17, and some market participants may be playing for it to move to the consensus target price. Additionally, the stock has a price-to-book ratio of 3.0, while the industry average is 5.9, indicating GERN could be undervalued, when compared to some of its peers.

Bear Case

There was some bearish put option activity in GERN today, and the company’s revenues fell by over 50% year over year. Moreover, the stock has a forward PE ratio of 221, which is well above the current industry average, potentially indicating the stock is overvalued. GERN also has a negative free cash flow per share, and a price-to-sales ratio of 58.6, while the industry average is 6.2. Therefore, this may be another indication that GERN is overvalued.

Last Word

There was bearish option activity in GERN today, which may have sent shares down nearly 3%. Now, there are two sides to this story, and some investors may be short due to the reasons outlined previously. On the other hand, some investors might be long due to its attractive price-to-book-ratio and recent rise.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

two + one =