Bio-Tech Vol Tops 2-Year High As FDA Decision Looms; Takeover Spec Heigh
Ophir Gottlieb | Jul 10, 2012 03:46AM ET
Amarin Corporation plc (AMRM) is a late-stage biopharmaceutical company with expertise in lipid science focused on the treatment of cardiovascular disease. The Company’s product candidate is AMR101, an ultra-pure omega-3 fatty acid. It is developing AMR101 for the treatment of patients with high triglyceride levels, or hypertriglyceridemia.
This is a vol and stock note on a bio-tech with $0 in revenue but a $2 billion market cap. The stock has been and continues to be the subject of takeover rumors and a huge FDA approval meeting (PDUFA) is due out July 26th. The vol is at a 2-year high (at least).
I last wrote about AMRN on 4-25-2012 (so ~2.5 months ago). The stock was trading $10.05 and vol was spiking at 100.58%. The Livevol® Pro Summary from that date is included below.
That blog post focused on the takeover rumors that were swirling and pushing vol up. Those rumors resurfaced on Friday and with the impending FDA decision, 100% vol and a $10 stock are no longer the story -- it's a $15 stock with 130% vol that we're lookin' at now. You can access the original post in April on AMRN , written by Scott Matusow.
So there you go... Let's turn to the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).
On the stock side, we can see how AMRN climbed abruptly in mid/late Mar on takeover spec. That's what the first blog post focused on. At its peak, the stock popped ~70% from that news (from ~$7 to ~$12). The stock came back down and settled at $10 (ish). However, starting in late May, the stock has found legs to the upside again and is now trading above $15.
On the vol side, we can see how the implied popped abruptly to triple digits in mid/late Mar (see first blog for details) off of the takeover rumors, but then settled to the mid 70's. But, since 6-20-2012, the IV30™ has steadily but substantially increased from 63.98% to now over 133%. That's a 108% rise in vol as the stock has risen 20% over the last three weeks. As I noted at the top of the article, the level of the implied now is well into new 2-year high territory (the prior high was 126% (ish)).
Let's turn to the Skew Tab and we'll be able to see both the impact of the takeover rumors and the PDUFA date / decision.
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We can see that Aug vol is well elevated to Sep (on all strikes) and Jul (for the ATM). In fact, the ATM vol in Jul is the lowest of the front three expiries. This elevated vol in Aug is a reflection of the risk inherent in the FDA decision. That vol will rise as we get closer tot he PDUFA date as long as (1) no news is broken early and (2) the PDUFA date remains in the Aug cycle (no delays).
We can also see the incredible vol in the upside calls in Jul. In fact, the vol is at such a fevered pitch in the Jul OTM calls that they surpass the vol in Aug which has the PDUFA date. It's that reverse skew that reflects the risk of the takeover.
So, in English, what we see are two distinct vol phenomena -- the risk of the FDA decision and the risk (potential) of the takeover. It's fascinating to watch the takeover spec given the fact that this firm has $0 in revenue yet is worth $2 billion in market cap. One might say that the FDA decision is a "big" one for AMRN...
Finally, let's turn to the Options Tab, for completeness.
Across the top we can see the monthly vols are priced to 102.67%, 147.67% and 120.43% respectively for Jul, Aug and Sep. Keep in mind that Aug vol comprises of a month worth of days (or whatever). We're looking at a bunch of "normal" vol days, and one "huge" vol day (the PDUFA ruling). As we move through the "normal" days in Aug and approach the singular "huge" vol, the overall level of Aug vol will rise substantially. A very rough back of the envelope calculation shows me that the vol on the day of the FDA decision is priced at ~500% (that's assuming 100% vol is "normal"). That doesn't mean Aug vol goes to 500%! But you already knew that... right?...
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