Monday, February 1, 2010

InterMune (ITMN) - FDA Advisory Committee & Skew

ITMN is trading 16.10 with IV30™ up more than 100%. The LIVEVOL™ Pro Summary is below.

The company has traded over 35,000 options today in the first hour on total daily average option volume of 2,317. The Company Tab snapshot is below (click the image to enlarge).

BRISBANE, Calif., Feb. 1 /PRNewswire-FirstCall/ -- InterMune, Inc. (Nasdaq: ITMN) announced today that the U.S. Food and Drug Administration's (FDA) Pulmonary-Allergy Drugs Advisory Committee (PADAC) is scheduled to discuss the company's New Drug Application (NDA) for pirfenidone on March 9, 2010. Pirfenidone is InterMune's investigational drug candidate for the treatment of patients with idiopathic pulmonary fibrosis (IPF).

Note the committee meeting date - 3-9-2010. This means Feb options are out of the loop and March options are very much in it. The Options Tab snapshot is included below - note the difference in the monthly IV and the volume in March.

Another way to look at it is through the skew charts. Two different snapshots are provided (one rotated). You can clearly see how the red month (feb) is substantially lower than the others. Note also the skew shape.

You can see the front month (red) has a fairly normal skew shape - but this month is "out of the game." You can see how the other months are yet to determine a real shape - in fact the downside for the fourth month (blue line) goes down then up. You can see similar kinks in the green month (third month). This happens when news comes out and the determination of possible outcomes are yet to be priced in. This is in a real sense, market discovery. The uneven skew is an explicit example of that. Hypothetically, if you had a good grasp on this event, you could take advantage of the mis-shaped skew (if it is in fact mis-shaped) while at the same time forcing it to take the right shape with your order flow.

The general thought process about bio-techs with decisions upcoming is that the ATM straddles are underpriced and then skew is over priced. If that's the case you expect a steep skew on both sides - we do not see that yet. Of course, following a "general" rule on bio-techs is about as risky as it gets - selling cheaper options on something that can explode up or down isn't exactly a comfortable way to make a living - very risky.

The Charts Tab snapshot is included below for an additional source of analysis.

You can see the IV30™ (red line) spike versus the HV20™ (blue line) along with a recent stock up-swing.

I will try to keep an eye on the skew shape and post updates if appropriate.

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