Kura Oncology (KURA) Offers Speculators a Profit-Scalping Opportunity

While investors should generally focus on compelling long-term ideas, sometimes, there’s a little bit of room for speculation. That might be the case for Kura Oncology (KURA), which presents a tempting proposition. Currently, KURA stock is caught between excited investors who anticipate a continued rally and those who have become increasingly skeptical.

Both sides have their arguments. On the surface, KURA stock appears a relevant idea. Specializing in cancer research, the company focuses on developing precision medicines or therapies that take aim at specific genetic alterations or molecular pathways that spark cancer growth and progression.

To put the matter into a greater context, research firm Report Study noted that the targeted therapeutics market reached a valuation of $67.7 billion in 2020. Further, experts project that by 2030, the sector could hit $87 billion, representing a compound annual growth rate (CAGR) of 2.1%.

Still, given the potential of the approach, the projection could be understated, thus driving intrigue for KURA stock. However, it’s also fair to point out that the space features many hits and misses. Notably, Kura shares lost about 3% of equity value in the trailing five years. That’s not a great performance by any measure.

Further, the company’s latest third-quarter earnings report gave both bulls and bears food for thought. On the surface, Kura reported a loss of $38.6 million or a per-share loss of 50 cents. Again, that’s not an encouraging print. However, the performance did beat the Street’s estimate, which called for a loss of 56 cents.

So, which version of KURA stock will stand up? In the trailing month, the bulls have had much reason to smile, with shares gaining over 24%. That has led to speculation that KURA could rise higher. On the other hand, since the beginning of the year, the stock barely poked its head above parity.

KURA Stock Sets Up an Enticing Battle of Nerves

With each side locked in a tight battle for control of KURA stock, the decisive move may come down to who blinks first. Given that KURA sees both unusual options activity and elevated short interest, the bears appear to have more at risk. Therefore, I suspect that the biotechnology firm could fly higher on the facilitation of a feedback loop.

First, KURA stock represented the most aberrant investment based on unusual options volume on Jan. 12. Specifically, total volume reached 10,511 contracts against an open interest reading of 3,345 contracts. Compared to the trailing one-month average metric, Friday’s volume was 1,532.14% above the norm.

Moreover, call volume came out to 10,389 contracts versus put volume of only 122 contracts. This pairing yielded a put/call volume ratio of only 0.01, translating to an overwhelmingly bullish profile based on a face-value reading. However, it’s difficult to ascertain just based on this data what the net underlying motivation is (i.e. whether bullish or bearish).

To get somewhat of a clearer picture, interested investors can turn to KURA’s options flow screener. Here, the biggest trade based on premium exchange was for the Feb 16 ’24 17.50 Call. A notation exists that this transaction was “to open,” meaning that the total volume of 4,984 contracts represented newly initiated positions. However, whether these were buying to open (BTO) or selling to open (STO) is a mystery.

Still, looking at the details, the aforementioned $17.50 call featured a quantity of 336 shares at the bid price of $1.15. On the ask side of $2.30, the quantity sat at only 16 contracts. However, the price of the call ultimately opened at $1.53 and closed at $2. From this data, it appears that sentiment was bullish, meaning that it’s likely institutional traders mostly bought the 4,984 contracts in question.

That’s got to make the bears nervous because KURA stock also features an elevated short interest of 18.75% of its float. In addition, the short interest ratio comes in at 9.21 days to cover (meaning that it would take over nine trading sessions for the bears to cover all their short positions).

Importantly, short interest means that traders are directly short KURA stock; that is, they borrowed the security, sold it immediately and are now hoping that shares decline so that they can buy back the borrowed amount at a discount and pocket the difference.

However, if KURA stock jumps higher from here, they could end up pocketing some serious pain.

A Tempting But Difficult Proposition

Adding to the optimism, the Barchart Technical Opinion indicator rates KURA stock as an 88% strong buy. It notes that there’s a high probability that shares will continue on their northbound trajectory in the short term.

Nevertheless, those who are bearish are not completely behind the eight-ball. In part, that’s because the technicals suggest that KURA stock is in overbought territory. Therefore, it’s not out of the realm of possibility that shares could correct from here. Indeed, the flat trajectory since the start of the year lends credence to the pessimistic outlook.

No doubt, it’s a difficult proposition. However, with KURA stock so close to reaching the strike price – just under 11% away based on Friday’s closing price – of the Feb. 16 call, along with apparently institutional support, the winds seem to favor the optimists. And if it does, the short traders will have to cover their positions to avoid uncapped liability.

That could lead to a positive feedback loop for the bulls as the covering action (i.e. buying back the target security at ever-rising prices) inherently supports the underlying market valuation. If you feel that Lady Luck is on your side, you may want to give Kura Oncology a long look.

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On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.