PTCT options are attractively priced, from a volatility perspective
PTC Therapeutics, Inc. (NASDAQ:PTCT) stock has been red-hot lately, racing to a two-year high of $33.22 last Wednesday. And if a recent volatility signal is any indication, the biotech name could be gearing up for an even bigger upside move in the coming months.
PTC Therapeutics stock is trading at $32.38 at last check, having already added an impressive 94% in 2018 thanks to strong sales of Ataluren, the company's lead drug for Duchenne muscular dystrophy patients. The shares have been ushered higher by their rising 10-day moving average since mid-February, and have nearly quadrupled in the past year.
Schaeffer's Senior Quantitative Analyst Rocky White regularly screens for stocks trading near their 52-week high while sporting unusually low implied volatility (IV) expectations, as measured by our Schaeffer's Volatility Index (SVI). Amid the recent ramp in equity volatility, Rocky's most recent study produced only two names -- including PTCT, as its SVI of 46% ranks in the low 9th percentile. This indicates front-month options have priced in lower volatility premiums only 9% of the time in the past year.
This combination of an annual-high stock price and extremely low IV has occurred two other times for PTCT since 2008. The stock was trading higher a month later on both occasions, with a substantial average gain of 12.6%. A move of similar magnitude from here would put the stock above the $36 level for the first time since September 2015.
Following this latest signal, a short squeeze could contribute to more short-term gains for PTCT. Short interest has fallen by 29% since mid-November, yet still accounts for 20.5% of the total float. At the equity's average daily volume, it would take nearly seven days for these bears to cover their positions.
Analysts share this skeptical outlook on the outperforming biotech, with 83% maintaining tepid "hold" or "sell" recommendations. A round of upgrades could also drive more gains for PTC Therapeutics shares in the coming weeks.
Editor's note: This article has been corrected to note that PTCT's March peak was a two-year high. We regret the error.