Unexpected FDA Approval May Spark Extended Clovis Short Squeeze

Shares of Clovis Oncology Inc CLVS initially spiked more than 12 percent on Monday following surprise news from the FDA that is has approved advanced ovarian cancer drug Rubraca. The FDA ruling caught the market off-guard because a ruling wasn't expected until February, and Clovis shares were halted following the huge spike.

While the FDA approval is certainly good fundamental news for the stock, a short squeeze is likely responsible for a significant part of the volatility.

Clovis' short interest has been on the decline ahead of the FDA ruling. After peaking back in early October, Clovis' short interest has since fallen more than 28 percent. However, according to shortsqueeze.com, the FDA approval still caught a huge number of short-sellers off guard. Clovis has an extremely high short percent of float of 38.4 percent. The stock has more than 8.7 million shares held short with 6.5 days to cover.

Many of these short sellers may have been betting against an FDA approval for Rubraca. The drug could soon be the best treatment option for 15-20 percent of the 22,280 women diagnosed with ovarian cancer this year.

After initially jumping above $46 when trading resumed on Monday, Clovis shares are now trading in the $42 range. Remaining short sellers are likely feeling the heat to close out their positions ahead of any more positive news from the company in coming weeks.

Clovis was also exploring the use of Rubraca for treatment of prostrate, breast and gastroesophageal cancers as well.