Aurinia Pharmaceuticals Call Buyers Hit The Jackpot With Well-Timed Option Trades

Aurinia Pharmaceuticals Inc AUPH shares are up more than 90% on Thursday after the company reported some positive Phase 3 data on a lupus treatment drug.

Voclosporin in combination with mycophenolate and low-dose corticosteroids produced significantly higher kidney response rates in patients with Lupus nephritis compared to a placebo. Aurinia is planning on submitting a New Drug Application to the FDA sometime in the first half of 2020.

Prior to the news, there had been an uptick in Aurinia call buying in recent months, and those calls are paying off in a big way on Thursday.

The Trades

Jon Najarian, co-founder Market Rebellion, told Benzinga on Thursday that Aurinia call buying volume has been on the rise in recent months, climbing from 14,000 contracts in September to 61,000 contracts in October and 127,000 contracts in November.

Back on Nov. 11, Benzinga Pro subscribers were notified that a trader bought 3,700 Aurinia call options with a $10 strike price expiring on Dec. 20 at the ask price of 70 cents. At the time, the trade represented a $259,000 bullish bet. On Thursday morning, those calls were valued at around $2.29 million.

But while the Nov. 11 call buyer may have gotten lucky in timing the news, Najarian said some more recent call buyers may have had more than luck on their side.

“Yesterday (12/4), in a single session our HeatSeeker picked up 33,000 calls, which was twice the MONTHLY volume in September!” Najarian said.

Najarian highlighted heavy volume in Jan. 10 calls when Aurina shares were trading at $8.23 on Wednesday.

“I suspect regulators will have to take a harder look at the activity, as timing this good usually catches the regulators attention,” Najarian told Benzinga.

Why It’s Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Given the large amount of option volume taking place on a daily basis, some trades will always look suspicious in hindsight when a stock moves as much as Aurina did on Thursday morning. But if Wednesday’s call buyers had any insider knowledge of the voclosporin, they could be subject to potential legal action.

Benzinga’s Take

As with any biotech stock with upside hinging on data and/or regulatory approval, Aurinia remains a high-risk/high-reward speculative investment. Long-term investors who have remained patient have certainly been rewarded, with the stock now up 464% overall in the past three years.

Aurinia's stock traded around $16.34 per share at time of publication.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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