Paying attention to the “unusual”

While a stock recently discussed in this space, Perrigo (PRGO), has come relatively close to filling a big down gap on its price chart, Immunovant’s (IMVT) gap story is a bit different.

In reality, at this point it’s no longer a gap story at all. Back on September 26, shares in the biotech stock jumped 97% on news of successful clinical trial results, gapping nearly $12 higher in the process:

Nearly six months later, the stock hasn’t come close to filling that gap. Shares swung up and down for the next few months, pushing to higher highs early this year before trending lower and, in the past few days, hitting their lowest levels since the September surge (more than 60% below the Street analyst target of 51.55¹).

The stock may have fallen off the radar for many traders, but on what was a quiet day for the stock market, Tuesday turned out to be very busy for IMVT. Shares rallied more than they had on any day in five weeks (more than 4% intraday), while options volume was more than 31 times average at midday:

Three positions stood out, including 2,500 contracts in the April $35 calls and 2,500 in the April $45 calls. While there’s no way to know if these positions were related, some traders would wonder if they were a large bull call spread—i.e., long the April $35 and short the April $45 call. This would represent a conservative (limited-risk, limited-reward) bullish position: If the stock is trading above the lower strike price at expiration, the position would have a chance of generating a profit.

From this perspective, the other notable trade on Tuesday, 2,500 contracts in the May $25 puts, could simply be coincidence—an unrelated, same-sized position. Or, it could be connected. For example, a trader expecting a stock to rally may also sell out-of-the-money put options in addition to executing a bull call spread.

Of course, new trades could make these puzzle pieces appear to fit together much differently. Traders who haven’t paid attention to IMVT in a while may be taking a closer look in the coming days to see if, and how, the picture changes. Options activity is more difficult to decipher than most people think, but it’s still worth noting when something out of the ordinary occurs.

Market Mover Update: As scrutinized as today’s Fed statement and Jerome Powell press conference will be, the Fed isn’t expected to cut rates. Yesterday, though, the Bank of Japan (BOJ) did something it hasn’t done since 2007—raise interest rates, to a target range of zero-0.1%. If that sounds like a modest adjustment, consider that the BOJ has kept rates in negative territory for eight years as it attempted to spur inflation—yes, increase inflation—because of its stagnating economy.

May crude oil’s (CLK4) 6%-plus rally over the past five days has driven the market to its highest levels (above $83 intraday on Tuesday) since October.

Today’s numbers include (all times ET): mortgage applications (7 a.m.), Atlanta Fed Business Inflation Expectations (10 a.m.), EIA Petroleum Status Report (10:30 a.m.), Fed interest rate announcement (2 p.m.).

Today’s earnings include: General Mills (GIS), Ollie’s Bargain Outlet (OLLI), Chewy (CHWY), Five Below (FIVE), KB Home (KBH), Micron Technology (MU).

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¹ TipRanks. Immunovant (IMVT) Stock Forecast & Price Target. 3/19/24.