Inovio Pharmaceuticals Inc INO shares traded lower by 4.1% on Tuesday but remain up 451.5% over the past six months on hopes the company will ultimately be first to market with the COVID-19 vaccine the world desperately needs.
On Monday, one large option trader made a huge Inovio option trade, seemingly betting that the company will jump out in front in the race for a coronavirus vaccine.
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The Inovio Trades
On Monday afternoon, Benzinga Pro subscribers received an alert related to an unusually large Inovio option trade:
- At 2:55 p.m. on Monday, a trader bought 500 Inovio call options with a $30 strike price expiring on Aug. 21 at the ask price of $2.201. The trade represented a $110,000 bullish bet.
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.
Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively small size of the Inovio trade, it’s unlikely that it represents an institutional hedge.
A Binary Outcome?
The huge rally in Inovio shares and any additional upside the stock may have in coming months seemingly hinges on its ability to bring a COVID-19 vaccine to market.
Inovio and Moderna Inc MRNA are among the six companies that have coronavirus vaccine candidates in human trials. Inovio’s INO-4800 vaccine candidate reportedly contains a bacterial DNA plasmid genetically engineered to produce a specific protein and trigger an immune response.
Inovio launched its Phase I trial of INO-4800 in early April and has said it could potentially have a vaccine ready within 12 to 18 months. Despite optimism in the market, analytics firm Clarivate has given Inovio’s vaccine candidate just a 15% probability of success.
Despite enthusiasm for the stocks, Wall Street analysts have taken a more measured stance on both Inovio and Moderna that's reflective of the relatively low probabilities of a positive outcome. The average price target for Inovio among the seven analysts covering Inovio is $12, or about 8.4% below Tuesday’s trading price.
It’s not necessarily the size of Monday’s trade that raises eyebrows. It’s the $30 strike price. Even with the stock up 450% in the past six months, the break-even price of the calls is $32.20, suggesting another 145% upside over the next four months.
Bullish sentiment among StockTwits messages mentioning Inovio is up from 73.1% on Jan. 8 to 90.4% on Tuesday.
Benzinga’s Take
Given the vaccine timetable, it’s unlikely any company will have a COVID-19 vaccine on the market by August unless the approval process is extremely expedited. Tuesday’s large Inovio call buyer may simply be betting that enthusiasm and speculation on Wall Street surrounding potential vaccines will continue to push the stock higher in coming months regardless of whether INO-4800 ever makes it to market.
Do you agree with this take? Email feedback@benzinga.com with your thoughts.
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