The shares of Pacira Biosciences Inc (NASDAQ:PCRX) gapped higher this morning, after rival Heron Therapeutics (HRTX) said the Food and Drug Administration (FDA) declined to approve its post-operative pain drug. Pacira sells a similar pain drug, which explains why PCRX stock is on pace for its best session since November 2017. What's more, the biotech is expected to report earnings tomorrow morning, and call options are flying off the shelves today.
Pacira shares have spent most of 2019 range-bound, bouncing between support in the $36 area and resistance around $41. However, the equity is set to break out of that neighborhood today, on pace for its highest close year-to-date. At last check, PCRX is up 15.9% to trade at $46.15, with stock volume on pace for an annual high.
While absolute volume is light, the 720 PCRX calls traded so far represents four times the average intraday volume, and more than double the number of puts exchanged. Most active are the May 45 and 47.50 calls, the buyers of which will profit the higher Pacira shares soar north of the $45 and $47.50 levels, respectively, by options expiration on Friday, May 17.
Over the past eight quarters, Pacira shares have averaged a one-day, post-earnings move of 4.9%. This time around, the options market is pricing in more than double that, at 10.6%. As far as direction, PCRX stock has moved higher the day after its last three earnings reports.
Meanwhile, several short sellers could be shaking in their boots today. Short interest jumped 10.8% during the two most recent reporting periods, and now represents 8.9% of the stock's total available float. At PCRX's average daily trading volume, it would take about eight sessions for shorts to buy back their bearish bets -- plenty of fuel for a short squeeze to drive additional gains, should Pacira Biosciences report stronger-than-expected earnings tomorrow.
A strong earnings showing could also lure analysts from the bearish camp. Currently, half of the brokerage firms following PCRX maintain "hold" or "sell" opinions, leaving the door open for a potential round of upgrades.