What happened

Shares of Atossa Therapeutics (NASDAQ:ATOS) were trading more than 22% higher as of 1:06 p.m. EDT Tuesday. Two factors could be behind its sharp stock price gain.

First, fund managers are likely buying shares ahead of Atossa's pending inclusion into the Russell 2000 and Russell 3000 indexes. Second, investors (especially those in the Reddit community) could be attempting to set off a gamma squeeze -- buying lots of short-dated call options in a way that pressures market makers to buy more shares, causing the underlying stock price to skyrocket.

Scientist looking through a microscope.

Image source: Getty Images.

So what

Probably the most important thing to understand is that any gains that derive from Atossa's addition to the Russell 2000 and Russell 3000 indexes or from a potential gamma squeeze will only be temporary. The biotech company's underlying business prospects will remain the key driver of its stock price over the long run.

Atossa's pipeline currently includes two clinical-stage programs. The company recently reported results from a phase 2 study of  lead candidate endoxifen in treating breast cancer, and it has plans to advance its experimental COVID-19 treatment ATO-301 into a phase 2 trial.

Now what

Atossa will be part of the Russell 2000 and Russell 3000 after the U.S. stock market opens on June 28. The company has started its non-clinical toxicology program for endoxifen -- results of which will be a prerequisite for U.S. regulatory approval of the treatment. It intends to request Food and Drug Administration approval to initiate a clinical study of the drug in the U.S. "as soon as possible."

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