The biotech sector has been popping off right now, as companies are trying to find a cure or vaccine for the coronavirus.
The latest company to explode — Dynavax Technologies (DVAX).
This morning shares of Dynavax Technologies (DVAX) surged by more than 40% after a positive catalyst hit the tape last night.
The reason for this large move?
The company revealed that one or more of its partners could start a Phase 1 clinical trial of a potential coronavirus vaccine as soon as July 2020.
Of course, there are many traders that are trying to play these moves… but I think it’s important to follow the money flow before making a move.
More specifically, the “smart money” trades happening in the options market.
This morning, I noticed a flurry of options activity in DVAX from my Dollar Ace Scanner.
By 10:05 AM ET, there were 7,756 calls traded… while the stock typically sees 351 calls traded on average.
That was a whopping 2,209.69% increase in call option volume.
To the untrained eye, these may all seem like bullish bets… heck, some may even follow suit.
But the thing is, my Dollar Ace Scanner actually pointed out something very interesting to me…
If you look at the options activity, it may look like a bunch of gibberish to you. However, it signaled one of two things:
- The “smart money” traders may be hedging their bets in DVAX
- They don’t believe in this run in DVAX
Now, there was one options order that stuck out to me…
Are Traders Hedging Their Bets, Or Are They Betting DVAX Won’t Follow Through?
A trader came in and sold 1900 DVAX Jun 20 7.0 Calls At $0.75.
The total premium on that specific trade amounted to a whopping $143K.
What was most interesting about this specific trade was the way it was executed.
You probably already know how the “smart money” has access to state-of-the-art technology and brokers… so they could try to get better fills.
However, the smart money decided to hit the bid.
There were other options orders across various strikes where the trader(s) hit the bid…
By the looks of it, these traders may be looking to protect their profits… or are betting against this move in DVAX.
Now, there are a few explanations for this action:
- The trader(s) were long calls from a lower strike price already and looked to hedge their bets by selling calls with a higher strike price.That would mean they entered into a call spread. That way, they can still participate in the move higher… but they had a target in mind.If they did sell those calls to establish this position, they would limit their risk… but they would also sacrifice some profit potential.
- The trader(s) were long stock and sold the calls to establish a covered call position. That would mean they’re neutral to bullish and would be willing to sell shares if it reached a specific strike price.With this specific trade in DVAX, it would be $7.
- The trader(s) simply didn’t buy into this move in DVAX and sold calls outright to collect premium.
Will DVAX explode… or can DVAX pullback?
We’ll just have to wait and see.
The thing is, my scanner pointed something out to me — to conduct my due diligence before taking a bullish position in DVAX.
Basically, it wasn’t a high conviction setup…
So what is a high conviction setup, in my opinion?
Let me show you with an example…
The total premium on the trade was $113K.
At the time of the trade, the bid price was $0.51, while the ask price was $0.74.
That meant the smart money paid up to get into this position… and they would need the stock to rise by more than 30% in less than 2 months to just break even.
That’s an indication to me that BCRX could run higher… but we’ll just have to wait and see.
Now, if you want to learn how I’m able to detect the “smart money” activity in the options market, then check out my important training workshop… it may shock you.