Penny Stock Gapping Higher on FDA News

A short squeeze could propel the shares even higher

Shares of T2 Biosystems Inc (NASDAQ:TTOO) are surging this morning, after the Food & Drug Administration (FDA) granted a "Breakthrough Device" designation for the company's gene diagnostic panel. At last check, TTOO is 29% higher at $4.86, pacing for its best session ever.

Analysts have been swift to voice their opinions on the FDA decision, with Canaccord Genuity calling it "unexpected good news," and reiterating a "buy" rating and $10 price target. Cantor Fitzgerald thinks the "Breakthrough Designation for T2Resistance further proves the unmet need of rapid-diagnostic testing for sepsis and antimicrobial resistance," maintaining an "overweight" rating and $11 price target on the stock -- more than double TTOO's current price. All four covering analysts sport "strong buy" ratings on the stock.

TTOO gapped higher on the charts today, and is set to close back above the 80-day moving average, which has been a ceiling of resistance for the shares since September. Furthermore, the stockhas skyrocketed to a year-to-date gain of 70%.

Several short-term options traders are likely cheering the rally. T2 Biosystems' Schaeffer's put/call open interest ratio (SOIR) of 0.22 ranks in the 22nd percentile of its annual range. This suggests that short-term options traders are heavily favoring calls over puts, more so than usual.

On the other hand, a short squeeze could be underway. Short interest accounts for more than 9% of TTOO's total available float, and would take more than three weeks to buy back, at the equity's average pace of trading.