Shares of Rocket Pharmaceuticals (NASDAQ:RCKT) popped sharply higher on Wednesday, making it one of the top-trending tickers. Yesterday, the biotechnology specialist — which focuses on rare childhood disorders with high unmet needs — announced an encouraging clinical trial development. Around the same time, management also announced an underwritten follow-on offering of RCKT stock.
According to Barron’s, Rocket stated that it reached a deal with the Food and Drug Administration (FDA) to support the Phase II trial of R-A501 for Danon disease. According to a publication listed on the National Institutes of Health website, Danon disease “is a rare X-linked dominant genetic disorder that manifests with the clinical triad of cardiomyopathy, skeletal myopathy, and intellectual disability.”
Further, Rocket states that the condition impacts about 15,000 to 30,000 people in the U.S. and U.K. Responding to the news, Needham analyst Gil Blum stated that the underlying gene therapy “will become a major value driver due to the size of the indication and lack of available therapy.”
Blum rates RCKT stock a buy with a $53 price target.
RCKT Stock Pops Amid Public Offering Disclosure
Earlier Wednesday morning, RCKT stock gained about 40% before settling around 35% up in the afternoon session. With the dramatic upside performance, Rocket has now found itself up roughly 8% since the beginning of this year.
According to the biotech’s press release, the secondary issue involves slightly more than 7.81 million shares of its common stock at a public offering price of $16 per share. Also, the deal includes pre-funded warrants to certain investors to purchase approximately 3.13 million shares of common stock at $15.99 per pre-funded warrants.
Gross proceeds to Rocket before the deduction of various expenses will be about $175 million. While secondary offerings, by nature, are dilutive, context matters. As Investopedia points out, companies may need to raise capital for long-term accretive endeavors such as research and development.
Bullish Options Activity? Not So Fast
Unsurprisingly, RCKT stock represented one of the top highlights for unusual options volume. As of this writing, total volume reached 15,681 contracts against open interest of 8,453, implying a surge in demand. Against the one-month average metric, Wednesday’s volume represented a leap of nearly 1,289%.
Enticingly, call volume hit 12,228 contracts against a put volume of only 3,453 contracts. This pairing yielded a put/call volume ratio of 0.28, seemingly indicating bullish sentiment. After all, call options give owners the right but not the obligation to buy the underlying asset at the specified strike price.
However, Fintel’s options flow data — which filters for big block trades likely made by institutions — shows an exclusive concentration of sold calls. In particular, traders sold (wrote) 5,108 $25 calls with an expiration date of Jan. 19, 2024, and 2,030 $17.50 calls with an expiration date of Oct. 20, 2023.
Generally, sold calls feature bearish implications because the seller profits (from the collected premium) if the underlying security fails to rise. However, sold calls can be part of a hedging maneuver that may yield a neutral profile.
Why It Matters
Despite the possible negative sentiment among institutional investors, analysts remain encouraged. Per TipRanks, RCKT stock commands a unanimous strong buy view among six experts. Overall, the average price target lands at $47.20, implying over 127% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
