Unusual Options Activity: Ginkgo Bioworks Holdings (DNA)

Shares of biotech firm Ginkgo Bioworks Holdings (DNA) suffered a double-digit loss on Tuesday following a short-seller issuing a report questioning the company’s revenue sources. However, one trader sees shares shaking off the fear and moving higher.

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  • That’s based on the March $14 calls. With 161 days to trade, nearly 4,600 contracts traded, a 32-fold rise in volume from the prior open interest of 144. The buyer of the call paid $1.28 for the trade.

    The trade was made as shares were knocked down to around $10.50. It would take about a 33 percent rise in shares for the option trade to move in-the-money. Given that shares have traded as high as $14.25 in recent sessions before the selloff, it’s possible that the stock could recover well before the option expires.

    The company is an early-stage player in cell programming for novel therapeutics and specialty chemicals. The company recently went public via special purpose acquisition company, or SPAC.

    Action to take: Investors may like shares here around the $10 range, about where shares traded as a SPAC before the merger. With the merger complete, the company has ample cash on hand to continue growing its business, and to move past the fears that led to a short-seller report in the first place. A modest double-digit rebound in the coming months is likely.

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  • Traders may like the call option. It’s an inexpensive way to bet on a rebound in shares, and even a partial rebound toward the prior high could lead to a triple-digit return given the price of the option. And the trade has ample time to play out, and for the company to respond to the short-seller attack.

     

    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.