Option activity on Seattle Genetics, Inc. (SGEN - 20.51) has taken a bullish turn lately, with speculators showing an increased preference for calls over puts. During the past five sessions, traders on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open 2,334 calls on the biotech stock, along with just 96 puts. The resulting five-day call/put volume ratio of 24.31 points to a strong bias for bullish bets over bearish on SGEN.

Broadening our scope to include data from the NASDAQ OMX PHLX (PHLX), SGEN sports a 10-day ISE/CBOE/PHLX put/call volume ratio of 13.45. This ratio ranks higher than 78% of other such readings taken during the previous year, revealing that options traders are purchasing calls over puts at a faster-than-usual pace.

During this same 10-day time frame, open interest at SGEN's June 22.50 call has surged by over 3,000 contracts. This overhead strike is now home to peak front-month call open interest of 5,379 contracts, followed closely by the 5,312 contracts in residence at the June 25 call.

On the charts, SGEN has racked up a healthy gain of 23.5% so far in 2012, easily besting the broader equities market. The shares are currently trading above support at their 10-day and 80-day moving averages, and they're also in the process of establishing a foothold above the round-number $20 level.

However, the stock is trading just below its all-time highs in the $22-22.50 area. This region marked peaks for SGEN throughout the fourth quarter of 2011, and the equity peaked squarely at $21.99 on May 18 before pulling back to trendline support.

With resistance in this area showing no signs of weakening, SGEN is facing an uphill battle as it attempts to chart new record highs. Unfortunately, the glut of out-of-the-money calls at the June 22.50 strike could cause additional trouble for the stock during the short term. As the hedges related to these overhead calls are unwound, the resulting selling pressure could keep SGEN pinned below familiar resistance.

However, that could be exactly what call players are counting on. Short interest accounts for a formidable 27.2% of the stock's float, so it's entirely possible that bears have been buying calls to hedge their shorted shares. This theory is supported by the preference for June 22.50 and 25 calls, since out-of-the-money options provide a cheaper hedge than their in-the-money counterparts.

Read more from the original source:
Can Seattle Genetics Break Through Looming Resistance?

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