When the wrong security spikes on news: Celgene CVR edition

One of my favorite trades is shorting a stock when the stock spikes on news from a similarly-named company. This is a rare event, but it is quite enjoyable and I have written about it when it happened to Riviera Tool Corp and Jetcom / Jet.com. A couple similar situations were Nestor Therapeutics / Nest Inc and Tweeter / Twitter. However, this is usually something that happens to illiquid OTC stocks. It appears that something like this just happened with a Nasdaq-traded contingent value right (CVR) relating to Celgene.

Basically, a CVR is a security issued by a company that is acquiring another company (usually a biotech) that will pay out if something good happens (usually drug approval). In this case, Charley Grant wrote a column for The Wall Street Journal that was bullish on a certain Celgene CVR that would pay out if three of its drugs in late-stage development got approved. That CVR was not yet assigned a ticker. Instead, a different CVR with the ticker CELGZ relating to Abraxane (from the merger of Abraxis and Celgene years ago) spiked 100% in two days starting the day the column was published and on the third day it lost all those gains.

The spike in CELGZ didn’t take it to an absurd value — it was higher back in March — but considering the timing and the volume it is almost certain that people bought the wrong CVR in response to Grant’s column. I checked Google News and I found no news for Abraxane around September 24th. Unfortunately, I did not trade CELGZ (even though it was available to short for about $0.006 per share at Centerpoint Securities on the day it dropped big). Oops.

CELGZ seven month daily candlestick chart
CELGZ one month daily candlestick chart

Once again, thanks to Twitter and one of the smart traders I follow on Twitter for pointing all this out, as shown in the tweets below:

Charley Grant tweet:

Here was the response from a trader I respect and follow:

There are a lot of smart traders on Twitter and one of the best ways to find them is to look at who the smart people follow. Start by seeing who I follow:

https://twitter.com/goodetrades/following

Disclaimer: No position in any company mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

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