ALX Oncology Surges 52% on Short Squeeze Fears and Biotech Sector Optimism: What’s Next for the Volatile Biotech Play?

Summary
• ALX Oncology (ALXO) surges 52.1% intraday to $0.98, defying a 52-week low of $0.404
• Short interest ratio of 8.0 and 11.93% shorted shares signal looming bearish pressure
• Biotech sector sees mixed momentum as Merck’s $2B RNA pact fuels sector optimism
• Options chain reveals high implied volatility (81.83%) on $1 strike calls, hinting at speculative fervor

ALX Oncology’s intraday surge has ignited a firestorm of speculation, driven by a confluence of short interest dynamics and sector-wide biotech optimism. With the stock trading at a 30% premium to its 52-week low, traders are scrambling to position for a potential short squeeze as the stock breaches key resistance levels. The biotech sector’s mixed performance, anchored by Merck KGaA’s $2B partnership with Skyhawk Therapeutics for neurological disease research, adds further intrigue to ALXO’s volatile trajectory.

Short Squeeze Dynamics and Sector-Wide Biotech Optimism
ALX Oncology’s 52.1% intraday surge is a textbook case of short squeeze mechanics. With 11.93% of shares shorted and a short interest ratio of 8.0, the stock’s rapid ascent has forced bearish investors to cover positions, amplifying upward momentum. This dynamic is compounded by broader biotech sector optimism, fueled by Merck KGaA’s $2B partnership with Skyhawk Therapeutics for neurological disease research. While ALXO’s fundamentals remain challenged (negative PE ratio of -0.4636), the stock’s technical profile—trading above its 200-day moving average of $0.9478—has attracted speculative capital betting on a short-term reversal.

Biotech Sector Mixed as Merck’s $2B Pact Outpaces ALXO’s Volatility
The biotech sector remains fragmented, with Merck KGaA’s $2B RNA-based neurological disease deal overshadowing ALXO’s volatility. While ALXO’s short interest ratio of 8.0 signals extreme bearishness, sector peers like Cellectis (0.47% shorted) and Kyverna (5.50% shorted) exhibit far lower short pressure. This divergence highlights ALXO’s unique positioning as a short-squeeze candidate, distinct from broader sector trends. However, the sector’s mixed momentum—driven by Merck’s blockbuster deal—creates a tailwind for biotech stocks with speculative catalysts.

Options Playbook: High-Leverage Calls and Gamma-Driven Positioning
• MACD: 0.0407 (bullish divergence), Signal Line: 0.0394, Histogram: 0.00135 (positive momentum)
• RSI: 51.90 (neutral, but trending upward)
• Bollinger Bands: Price at $0.8383 (above 0.7388 upper band, signaling overbought conditions)
• 200-day MA: $0.9478 (price below, suggesting bearish bias)
• Support/Resistance: 30D support at $0.4649, 200D resistance at $0.5229

ALXO’s technical profile presents a high-risk, high-reward setup. The stock’s price above its 200-day MA and overbought Bollinger Bands suggest a potential reversal, but the 52.1% intraday surge has created a short-term overbought condition. Traders should monitor the $0.8654 intraday high as a critical resistance level; a break above this could trigger a short squeeze, while a pullback to the $0.6601 low may test near-term resolve.

Top Options Picks:
1. ALXO20250919C1 (Call, $1 strike, Sep 19 2025):
• IV: 218.48% (elevated volatility)
• Leverage Ratio: 3.94% (modest)
• Delta: 0.6227 (high sensitivity to price moves)
• Theta: -0.004205 (rapid time decay)
• Gamma: 0.5866 (high sensitivity to price acceleration)
• Turnover: 23,228 (high liquidity)
This contract offers asymmetric upside if ALXO sustains its rally. The high delta and gamma make it ideal for a short-term bullish bet, though the 218.48% IV implies significant premium decay. Projected payoff at 5% upside (to $0.98) yields a 4.19% gain.

2. ALXO20251017C1 (Call, $1 strike, Oct 17 2025):
• IV: 64.31% (manageable volatility)
• Leverage Ratio: 9.86% (high)
• Delta: 0.5416 (moderate sensitivity)
• Theta: -0.001151 (slow time decay)
• Gamma: 1.5309 (extreme sensitivity to price swings)
• Turnover: 1,126 (modest liquidity)
This contract’s high gamma and leverage ratio make it a speculative play for aggressive bulls. However, the 64.31% IV and moderate delta suggest a balance between risk and reward. Projected payoff at 5% upside yields a 4.19% gain, but execution risks are elevated.

Aggressive bulls may consider ALXO20250919C1 into a breakout above $0.8654. If the stock fails to hold this level, short sellers could regain control, making ALXO20270115P0.5 (put, $0.5 strike) a hedge against a potential reversal.

Backtest ALX Oncology Stock Performance
The backtest of ALXO's performance after an intraday surge of 52% shows poor short-term results, with the 3-Day win rate at 47.09%, the 10-Day win rate at 46.72%, and the 30-Day win rate at 45.97%. The strategy resulted in a maximum return of only 0.12% over 30 days, indicating it is not a profitable approach.

Short Squeeze on the Horizon: Position for a Volatile Finish
ALX Oncology’s 52.1% surge has created a high-stakes scenario where short sellers and bullish speculators clash. The stock’s proximity to its 52-week high of $2.585 and the 8.0 short interest ratio suggest a potential short squeeze could drive further gains, but the negative PE ratio (-0.4636) and weak fundamentals remain a caution. Traders should monitor the $0.8654 intraday high as a critical inflection point; a break above this could trigger a parabolic move, while a pullback to $0.6601 may reignite bearish sentiment. Meanwhile, sector leader Amgen (AMGN) fell -1.1178% intraday, underscoring the sector’s mixed momentum. Act now: Buy ALXO20250919C1 if $0.8654 holds, or short the stock if it fails to sustain above $0.8383.