Someone Was Betting Big On Gilead On April 16

Apr. 17, 2020 10:21 AM ETGilead Sciences, Inc. (GILD)96 Comments

Summary

  • Options traders were really liking Gilead's stock on April 16.
  • There was about $11.5 million in premiums paid on calls.
  • STAT later that day noted some encouraging data.
  • Looking for a helping hand in the market? Members of Reading The Markets get exclusive ideas and guidance to navigate any climate. Get started today »

I have been investing for a long time, and nothing ever seems to amaze me. Options betting in Gilead (NASDAQ:GILD) on April 16 were heavy and directionally bullish. Then, late in the afternoon, news broke that one of the Gilead's drug showed potential in the battle against the coronavirus.

The article by STAT noted that Gilead's drug Remdesivir was helping some of the sick patients to get better. The report indicated that the University of Chicago Medicine recruited 125 people. Of those patients, 113 had a severe version of the disease. The article noted two patients died and most of the others had been released from the hospital. How many of the other 123 patients have been released is still a mystery as the article does not site that statistic. There was also no control arm, making it challenging to know how those on an alternate treatment may have faired.

Old Data or New?

Interestingly, on April 10, Gilead issued a press release noting that patients from another study also showed improvement using Remdesivir. The company indicated that 57% of 30 patients were extubated and 47% of the 53 patients were discharged from the hospital. The data also showed that the mortality rate was 13% or 7 of the 53.

The article from STAT, although encouraging, was light on a lot of details, and I and many others would love to see the complete data when it becomes available.

Someone Loves Gilead

However, what seems most interesting is the call buying activity that took place on April 16, ahead of this report. We saw open interest levels for the August 21 $85 strike price calls increase by 9,048 contracts on April 17. The data shows that majority of the calls were bought for about $5.10. It means that stock would need to increase over $90.10 for the buyer of the calls to earn a profit.

Additionally, the $80 calls for expiration on August 21 increased by 6,235 contracts. Again, these calls traded on the ASK and were bought for around $6.30 per contract. It means that for a buyer of these calls to earn a profit, the stock would need to rise above $86.50 by the expiration date.

Finally, the $87.50 calls for expiration on August 21 increased by 5,856 contracts. Again, these calls also traded on the ASK and were bought for around $5.00 per contract. That means that the stock would need to rise above $92.50 by the expiration date.

In total, there was about $11.5 million worth of premium paid for this Gilead calls contracts that expire in August on April 16. It seems that someone was very bullish on Gilead's stock on April 16.

Not So Fast On The Data

Now, whether or not Gilead's drug will prove to be useful is unknown. An article in Newsweek noted a statement from Gilead, which said that anecdotal evidence was encouraging; however, "do not provide the statistical power necessary to determine the safety and efficacy profile of Remdesivir as a treatment for COVID-19."

Hopefully, we can all get to see the full data and soon, to find out whether this drug can genuinely be helpful or not. But it seems that somebody is betting big that the drug works. How it was these traders perfectly timed it along with the article that was released with STAT later that day, that's a question for someone else.

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This article was written by

Mott Capital Management profile picture
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Designed for investors looking for stock ideas and broader market trends.

I am Michael Kramer, the founder of Mott Capital Management and creator of Reading The Markets, an SA Marketplace service. I focus on macro themes and trends, look for long-term thematic growth investments, and use options data to find unusual activity.

I use my over 25 years of experience as a buy-side trader, analyst, and portfolio manager, to explain the twists and turns of the stock market and where it may be heading next. Additionally, I use data from top vendors to formulate my analysis, including sell-side analyst estimates and research, newsfeeds, in-depth options data, and gamma levels. 

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.

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