Alzheimer’s disease treatment company Cassava Sciences (SAVA) dropped 15 percent on Monday. A leaked report suggests that the company may have manipulated data, and one trader is betting shares will continue to drop.
That’s based on the November 17th $10 puts. With 30 days until expiration, 2,445 contracts traded compared to a prior open interest of 126, for a 19-fold rise in volume on the trade. The buyer of the puts paid $0.70.
Shares recently traded at about $12.50 where they hit a 52-week low, so they would need to drop another $2.50, or about 20 percent, for the option to move in-the-money.
Given the allegations against the company, a further drop could be forthcoming in the next few weeks.
As an early-stage biotech company, Cassava has been losing money, ahead of creating a treatment that can be monetized after regulatory approval.
Action to take: The leaked report suggests that there may be more downside for shares ahead. In the worst-case scenario, the company could be worth as little as the cash on the balance sheet. If new information comes to light, it could be a buying opportunity – but not until then.
For traders, the trend is lower and will likely continue. The November $10 puts are priced for a big move lower, and could see mid-to-high double-digit returns, even if the rest of the market trends higher in the next few weeks.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.