Put Traders Play SGEN Resistance

08/31/2011 6:00 am EST


Elizabeth Harrow

Director of Digital Content, Schaeffer's Investment Research, Inc.

Option traders are actively betting on shares of Seattle Genetics (SGEN) to head lower off of nearby resistance, reversing what has been a consistent, sizable rally in recent sessions.

Put volume skyrocketed yesterday on Seattle Genetics, Inc. (SGEN), with nearly 2,700 of these bearishly oriented options changing hands by mid-morning. By contrast, SGEN's average daily put volume totals just 539 contracts. Meanwhile, only 651 calls had been exchanged on SGEN so far on the day.

The most active strike is SGEN's September 15 put, where 2,558 contracts have traded—67% at the ask price, suggesting they were most likely purchased. Implied volatility on this strike has jumped 7.4 percentage points, indicating rising demand for this front-month put. The out-of-the-money September 15 strike already hosts open interest of 3,898 contracts, but it looks as though a fresh batch of bearish bets is being added here.

However, SGEN is no stranger to pessimistic speculation. Short interest ramped up by nearly 8% over the past month and now accounts for a hefty 21.8% of the stock's float. At SGEN's average daily trading volume, it would take nearly nine days for all of these shorted shares to be covered.

See related: 3 Common Short Selling Mistakes

Checking out the charts, SGEN is clinging to a respectable year-to-date gain of 11.4%. The stock last Friday reclaimed a foothold above its 40-week moving average, which has served as key support on pullbacks since April 2010. Now, the shares are attempting to break out above their ten-week trend line located just north of $17.

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Put traders may be betting on the 50-day moving average acting as resistance and SGEN taking a breather after five straight days of positive gains.

By Elizabeth Harrow, contributor, Schaeffer’s Trading Floor Blog

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