You don’t need to search far and wide to find an excuse to be bearish on once-hot vaccine player Novavax (NVAX). Right off the bat when you peruse Barchart’s overview of NVAX stock, you can see that the investment resource’s Technical Opinion indicator rates the enterprise a “strong sell.” How strong? We’re talking a 100% assessment that the current negative trend will continue in the short term.

Needless to say, so far, the indicator has proven correct. Just on a year-to-date basis, NVAX stock is down more than 25%. In the trailing 52 weeks, shares lost more than 66% of equity value. At one point in 2021, NVAX was trading near $300 on a weekly average basis. This month, it couldn’t even hold onto four bucks. The paradigm shifted – in just about the worst way possible.

Unfortunately, Novavax has printed a classic rags-to-riches-to-rags tale. Prior to the COVID-19 crisis, the biotech was “on the verge of collapse,” to borrow language from The New York Times. At the time, “its leading vaccine candidates — to prevent a deadly virus in infants — had failed for the second time in three years. The company’s stock was trading so low that it risked being removed from the Nasdaq.”

In many ways, we’ve come full circle with NVAX stock. As Barchart content partner The Motley Fool pointed out, “Novavax faces challenges, making it a risky stock. For example, it's involved in a dispute with Gavi, the vaccine alliance over the delivery of vaccine doses. If Novavax loses, it may have to return nearly $700 million in payments to Gavi. The dispute is under arbitration right now.”

Given the many question marks surrounding NVAX stock, it’s no wonder that investors have abandoned ship. Nevertheless, directly betting against Novavax at this juncture could be even more of a risk.

NVAX Stock Returns to Concentrated Price Discovery

If you look at most NVAX stock price charts, you’ll see variations of the same thing: low-priced activity prior to COVID, then a skyrocketing to the heavens followed by a sharp decline. However, that doesn’t really tell us a whole lot because price is represented as a function of time, with time being the independent variable. However, the earth moving around the sun once every 365 days might not carry much relevance.

To get a better understanding of the sentiment surrounding NVAX stock over the past several years, I decided to represent its price as a function of its “mobility” or the percentage gained or lost during the defined time basis (in this case weekly). Performing this exercise isolates market sentiment; that is, we can see for every “expenditure of energy” how much it moved the needle for Novavax.

Running this analysis, I came across a few insights:

• In 2019, NVAX stock largely traded within a tight price range.
• During the first year of the COVID-19 crisis, sentiment flared out, with shares mostly enjoying robust upside swings.
• In 2021, sentiment was even more extreme although we began to see more instances of major downside moves.
• Interestingly, 2022 also saw sporadic trading patterns but a lower price spectrum.
• Last year, trading became condensed within a tight range, with the median price in 2023 landing at $7.55.

In my opinion, it appears that in 2020 and 2021, NVAX stock benefited richly from new-to-the-company speculators that saw a groundbreaking opportunity. However, as it became clear that Novavax would lose out in the race to provide a COVID-19 vaccine alternative quick enough, these same speculators exited the market. Later, in 2022, most of the weak hands got flushed out as they sought greener pastures.

Finally, when last year rolled around, NVAX stock was left with the strong hands – the same folks that stayed with Novavax during its troubles in 2019. So, the question is, can lightning strike twice?

Bears Take a Huge Risk

Back on Jan. 16, Fintel’s options flow screener – which exclusively filters for big block transactions likely made by institutions – showed 7,355 contracts sold of the NVAX Apr 19 ’24 5.00 Call. At the time of the transaction, open interest for this call option stood at 13,842 contracts. A day later, open interest spiked to 21,005 contracts.

Most recently, following the close of the Feb. 5 session, the open interest still stood at 20,491 contracts. That strongly indicates that the bears are still underwriting the risk that NVAX stock will not reach the $5 strike price by the April 19 expiration date. Technically, I can appreciate why. Closing out the position (exposure) – by buying the same calls costs money, thus cutting into the $371,000 of premium collected.

Still, the bears can’t have it both ways. By not closing the position, they’re now exposed to the risk of NVAX stock flying higher. And the possibility of the security shooting up is all the more elevated because Novavax prints a short interest of its float of 48.24%. That’s outrageous – and the short interest ratio of nearly 9 days to cover is also a risk factor.

Basically, if the bears wanted to unwind their short position in the open market, they would need almost two business weeks to do so. Worse yet, if a short squeeze materializes in NVAX stock, then it could easily spark a panic in the derivatives market.

If that happens, bearish options traders will be wishing they had closed their exposure when they had the chance.

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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.