Sorento Therapeutics (NASDAQ: SRNE) is causing Wall Street to divide. Some bears are adamant that Sorrento will become a COVID-19 stock that will fade in a few months. Whereas the bulls are aggressively buying up SRNE shares as they believe the biotech has not even come close to its true value. While the overall war between the SRNE bears and bulls is unclear, the bulls are dominating the charts as Sorrento climbs 43% in two days. A lot of eyeballs and wallets are now on SRNE as a potential COVID-19 play. Today’s article will explain SRNE’s recent developments, how Jim Crammer is aiding a bull run, and whether shorting or going long on Sorrento is the best option.
Table of contents 1. Sorrento's COVID-19 update. 2. Jim Crammer is injecting SRNE with confidence. 3. Does going long on SRNE hold more value than shorting.
Why is Sorrento up 54.7% this week?
Sorrento is set to open at $14.72 (14.49%) this morning according to pre-market movements (8am EST). So what caused this upswing in investor interest?
Sorrento Announced last Wednesday that they had entered a licensing agreement with Columbia University to the rights to a rapid COVID-19 Saliva test. The saliva test offers a less invasive COVID-19 testing method , which only needs 30 minutes of incubation before the test results show. This advancement in testing may push testing at site and potentially to households. This licensing agreement shot investor interests sky-high, with the stock reaching heights it hasn’t seen since September 2015. Wallstreet analyst Raghuram Selvaraju reinstated his buy rating on Sorrento (SRNE) and increased his target price from $24 to $30. Read here for more information on SRNE price target averages.
The Jim Crammer Effect is boosting Sorrento Therapeutics
The influx of retail investors during the coronavirus saw Jim Crammer’s show Mad Money gain significant traction. This should be no surprise as his enthusiasm, tell like it is attitude, and constant hunt to find a bull run makes his content appealing to mum and dad investors. Every time Jim Crammer champions a stock in Mad Money, the bulls rally behind the company during trading hours, creating the Crammer Effect.
Crammer has been rallying behind Sorrento since June when the company traded at $4. SRNE’s positive PR on Mad Money for its COVID-19 vaccine contributed to the 100% surge to $8. Yesterday Jim explained how “stupid” it was that the market did not rally behind Sorrento’s rapid Covid-19 detection test announcement last Wednesday. Yet Tuesday this week the stock rallied 31% on the same news. Since Jim Crammer’s comments, SRNE has risen 11.45% to $14.31. Coincidence probably not. Now YIG is not saying that Jim Crammer solely moves SRNE, but his bullish sentiment holds significant weight.
Overall it seems retail investors do not want to invest in a COVID-19 stock until someone else gives them the confirmation. Such as a financial media company like Motley Fool or social media platform like Facebook. In Sorrento’s case it is Jim Crammer who is partially fuelling the bullish appetite of retail investors. Thus, YIG would like to point out that it pays to know when Jim Crammer will be talking about Sorrento on Mad Money. Investors can keep track of Jim’s movement via the CNBC website here or TV guide.
The constant short and long battle over SRNE – is there a clear winner?
Before I begin, I am obliged to remind our viewers that this is not financial advice but rather investment commentary from extensive research
Going long on Sorrento Therapeutics
When investors go long on a stock, they are going with the crowd. The Sorrento party is bullish, which means if an investor wants to go long, they can purchase call options, sell put options, or buy low and sell SRNE shares for a higher price in the market. Investors initially went long on Sorrento as they announced 100% protection against COVID-19. However, the possibility of a pump a dump and a growing lawsuit saw the investors going long go into hiding.
Investors have since turned a page as the lawsuit alarms faded into the background, and positive COVID-19 catalysts rolled in. The increase in SRNE call options for August and September validates this claim. In August call option volume for strike prices $12, $13, and $14 were 18,159, 7472, and 3433, respectively. Compare that to September’s call options for the same strike price and we get 9157, 1954, 1042. While the volume is lower, we are only five days into August allowing for the call options that expire in September to gain significant traction still.
When an investor is shorting a stock they are going against the crowd. In the case of SRNE to short the stock you would take a bearish position by purchasing put options or selling call options. Initially, shorting SRNE was the popular route. Because they had made the claim off 100% COVID-19 protection without any clinical trials and had a lawsuit on their hands. However, the voice behind SRNE shorters is losing momentum.
How do we know this? We look at the volume of puts on the options chain. The volume of SRNE August puts at a strike price of $12,$13, and $14 is 4012, 1100, and 254 units, respectively. Compare that to the volume of September puts for the same strike prices, and we have 199,80, and currently 0 puts. The picture becomes clear. Think of SRNE shorters at the moment as a few people in the corner at a party asking everyone to turn the music down. YIG does not make this statement to say that all shorters are wrong in their financial judgement but to say the underlying sentiment is bullish simply.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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Written by Patrick McLoughlin, and Tyger Fitzpatrick, Senior Manager, and Founder of YIG.