To no one’s surprise, very few publicly traded companies fared well during the onset of the COVID-19 crisis. With fears rampant at the time of a global shutdown of commerce, many chose to avoid the equities sector altogether. However, the businesses that did flourish represented direct beneficiaries of the new normal, including Co-Diagnostics (CODX).
Trading for under a buck at the beginning of 2020, CODX stock briefly traded hands above $25 in August 2020 before succumbing to significant market pressure. Though its COVID-19 polymerase chain reaction (PCR) test kits were fundamentally significant, their relevance was also steadily expiring as fears of the SARS-CoV-2 virus faded. Further, the vaccination rollout helped return society to (relatively) normal functionality, imposing further pressure on Co-Diagnostics’ pandemic-related revenue channel.
Although CODX stock poked its head above water every now and then, it was mired in a bearish trend channel. On a year-to-date basis, shares have lost nearly 35%, reflecting the changing of the tide as it relates to COVID-19. However, over the trailing month, CODX has gained nearly 14%, a cynical beneficiary of another health concern: monkeypox.
On July 21 of this year, AP reported that the World Health Organization (WHO) would convene to determine whether to declare monkeypox as a global crisis. Two days later, The New York Times reported that the agency did indeed declare the virus as a global emergency.
Not unexpectedly, the epidemiological shift boosted CODX stock, in particular because the underlying firm announced on July 11 that it began shipments for testing reagents for the virus to one of its international distributors. But now that the WHO has defined monkeypox as a worldwide emergency, the options market is lighting up for Co-Diagnostics.
CODX Stock Back in the Limelight
Following the close of the July 25 session, CODX stock was the recipient of unusual options activity. In particular, traders piled into the $6.50 calls with an expiration date of July 29, 2022. This was the second-most unusual transaction for the day against normal trading dynamics. Volume reached 12,652 contracts against an open interest reading of 111.
However, the bid-ask spread as represented by the midpoint price (18 cents) was 27.8%, which should give prospective buyers pause. While options tend to have higher spreads than the open market due to relatively limited participation in the former, a spread approaching 30% is substantially high.
For comparison, consider electric vehicle firm Nio (NIO), where traders piled into the $18.50 calls with an expiration date of Aug. 19, 2022. Here, the spread as represented by the midpoint price was only 3.4%, indicative of strong volume and much greater confidence of the market marker to facilitate the transaction.
Since volume spiked up for the $6.50 CODX calls, the extremely wide spread suggests market makers are not at all confident about placing this transaction. Therefore, the spread has been widened to protect their financial interest. Considering the wild ebb and flow of CODX stock in the open market, it’s not surprising that market makers are hesitant with the underlying trade.
Still, the put/call open-interest ratio is 0.46, implying that optimism is starting to seep into Co-Diagnostics once again.
The Benefit of Plausible Deniability
Fundamentally, conservative investors may be gun shy about reengaging CODX stock, considering how the COVID-19 catalyst eventually soured. And when it did, the market value of Co-Diagnostics utterly plummeted. Understandably, few people want to repeat the same painful mistake.
Admittedly, it’s always dangerous to bring up the phrase, this time, it’s different. At great risk of embarrassment, this time truly could be different and that’s because of the concept of plausible deniability.
With COVID-19, it’s easy for infected people to dismiss symptoms as being related to other conditions. In fact, the Mayo Clinic readily admits the difficulty in distinguishing symptoms caused by COVID, cold, allergies or the flu. Further, because COVID is an internal condition, individuals that experience mild symptoms can choose to brush it off.
However, monkeypox infection manifests itself externally – and quite grotesquely with its characteristic lesions. In addition, The New England Journal of Medicine recently published disturbing photos of monkeypox lesions in the personal areas of the body.
Put another way, the guttural horror of monkeypox infection is likely enough to incentivize testing and other protective or preventative protocols in a way that the SARS-CoV-2 virus could only “dream” about.
A High-Risk Idea With Some Clout
To be fair, the aforementioned CODX call options will expire shortly so it’s difficult to extract long-term implications behind this trade alone. However, the rise of the monkeypox virus as a global emergency – along with its terrifyingly identifiable symptoms – present a cynical catalyst for Co-Diagnostics. Therefore, those with some extra pocket change may want to entertain the idea of wagering on CODX.
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