BNGO Stock Price: Bionano Genomics Inc runs into resistance, put options may work

• BNGO shares have continued to suffer after the retail meme crowd moving on.
• Shares bounce from lows as DeMark buy signal flashes on Monday.
• BNGO shares trend up to resistance at 100-day moving average.

Bionano Genomics is a life sciences company working in the genome sector. The company is involved in genome sequencing that helps to identify genetic variations that are linked to certain diseases and conditions. Bionano's Saphyr system is involved in aiding diagnostic and therapeutic targets in the study of changes in chromosomes. 

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BNGO stock news

BNGO shares exploded in late December 2020 and early January 2021 as the retail meme traders took hold of the name. BNGO traded at $0.55 on December 18 but by January 25 had hit $15.69. That is a gain of over 2,000% in the space of one month. Hard to fathom, but BNGO was not alone as R/WallStreetBets and retail took over large sections of the market. Hopefully, some people made money, but inevitably many will have lost considerable sums.

This is another classic case of buying the hype or rumour. BNGO shares have given back some of the large gains seen in January. Even so, they still trade at $6 and have a market cap. of $1.66 billion. At January's peak, BNGO was worth nearly $5 billion. This is a company that had revenue of $8.5 million in 2020. It had an operating income of $-38.55 million. It has not turned a profit in five years and counting.

So clearly the valuation is and was way too stretched. This is basically a lottery ticket. Traders are banking on the company having a home run with one of its products and the share price going parabolic. This can happen. For example, look at Moderna.

Short-term traders are more concerned with jumping in and out of trends, so technical analysis and momentum are more important. Knowing the overall fundamentals is important as you know the heightened risk involved. Jumping in and out of Apple means, worst case, if you get stuck in a position you are still left with a shareholding in a solid company. If you get stuck in a position in a highly-stretched valuation, your potential loss is much larger.

BNGO flashed a 9 DeMark buy signal at the start of this week on Monday, April 19. The DeMark sequential indicator is a system designed to look for price exhaustion in a trend. It looks for trend reversals. We can see that this buy signal also nicely correlated with BNGO just nearing its 200-day moving average. This is an often-used support/resistance indicator to show the long-term trend of prices.

Now BNGO has traded up and stalled at the 21-day and 100-day moving averages. The short-term trend is positive as BNGO has broken above the 9-day moving average but needs to break this resistance area of $6.76 to $6.90. This area is one of strong resistance as $7.01 is the low of the $9.62 to $7.01 range that BNGO traded in from March 5 to April 12. Given the fundamental background of BNGO's valuation and the recent bearishness trending in the broader market, this three-day rally may already be struggling. Going short highly volatile stocks like BNGO is not advised, but using a put option gives bearish traders the opportunity to limit losses in the event of an unexpected product breakthrough. 

BNGO May 21 $5 puts give holders the right to sell BNGO shares at $5 anytime until May 21. If the BNGO price collapses to $1 then your profit is $4 per share. If BNGO shares trade the same or higher, all that is lost is the option premium paid. In this case, the premium is $0.37 per share.

The put/call premium is also favouring calls over puts. This is basically comparing calls (buy options) and puts (sell options) that are trading equidistant from the current BNGO share price. For example, BNGO is trading at $6. A $7 call is comparable to a $5 put, both being $1 away from the current share price. All things being equal both these options should cost the same. But in the case of BNGO, the May 21 $7 call that gives you the right to buy BNGO anytime up to May 21 at $7 is going to cost you $0.48 a share, while the $5 put is cheaper at $0.37 a share. Most call options trade at a higher premium to puts given that markets tend to trend higher over time. But this is a short-term option showing traders are bullish. The volume in the calls is also higher than puts, again a bullish sign. 

However, given BNGO is as demonstrated at a period of strong resistance, the $5 put gives an opportunity to play a short move back from resistance for a small $0.37 per share risk. 

The Relative Strength Index (RSI) is not showing overbought or oversold levels but is trending lower. The Williams oscillator is also trending lower. 

Bulls will have to see all the levels mentioned broken, which will then give a target of the upside of the March 5 to April 12 range at $9.62.

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