Speculation Ramps Up on Penny Stock Amid Bankruptcy Buzz

Call traders could be betting on a 100%+ move from the shares

Insys Therapeutics Inc (NASDAQ:INSY) said after the close on Friday that it may need to file for bankruptcy because of its inability to pay for legal fees surrounding its fentanyl scandal. The stock has lost almost one-third of its value today to trade at $0.92, touching its lowest levels since 2011. Still, some risky speculators may be targeting INSY in the options pits.

Specifically, the June 2 call is the most popular today, where it looks as if traders possibly bought to open contracts shortly after the open. If so, they would be wagering that Insys can more than double in value over the next month, needing the shares to rise above $2.10 to become profitable, since the value-weighted average price (VWAP) for the calls is 10 cents (strike plus premium paid).

Interestingly, call buying had already been popular at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) during the past 10 days. In fact, long calls tripled long puts over that time, with the largest increases in open interest occurring at the May and August 5 calls.

Short sellers have been enjoying this crash in INSY shares, which were trading near $7 back in early March. By the numbers, 44% of the float is held by short sellers, or more than 27 days' worth of buying power, based on average daily trading volumes.