Tuesday, March 2, 2010

Forest Labs (FRX) - Big April Option Action

FRX is trading 30.32. The LIVEVOL™ Pro Summary is below.

The company traded over 20,000 options yesterday on total daily average option volume of just 1,408. Further, 18,000 of that was in April. The largest trades were massive opening call purchases Apr 30 6500x and 32.5 6700x. The Apr 27.5 and 30 puts also traded ~2,400 each (mostly purchases). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab snap is included (click to enlarge). You can see all of these trades (all four lines) were opening based on the tiny open interest (OI). They were predominantly purchases.

Also note the Apr vol closed at 31. That's six points above the front month and actually a point higher than May which has earnings (a vol event). The Skew Tab is included (click to enlarge) - the front month is excluded.

Skew Legend:
Yellow - Second month
Green - Third month
Light Blue - Fourth month
Dark Blue - Fifth month
Purple - Sixth month

The second month vol is unusually high (again, third month has earnings) - other than that, there doesn't seem to be anything unusual yet in the shapes. There is a significant downside bend which is "normal." To read why skew exists you can CLICK HERE.

The recent news in FRX is included (click to enlarge). Essentially they were denied FDA approval on expanding the use of one of their drugs.

The company has some other interesting news as well (this is from Smart Money):

In about two years, the company is expected to lose $2.3 billion of its $4.2 billion in yearly sales when its patent for Lexapro, a pill for depression, expires. The company expects six drug approvals between now and the end of 2012. Forest’s strong financial results in its most recent quarter are a reminder of how profitable the company remains for now. It generates yearly cash flow equal to nearly 12% of its stock market value, and it sits on a cash stockpile equal to more than 35% of its stock market value.

Finally the Charts Tab snap is included (click to enlarge). You can see a short term run up in stock. The bottom portion of the chart are the vols: IV30™ (red) vs. HV20™ (blue). The yellow shaded area charts the vol difference. You can also see that IV30™ is pushing passed HV20™. Finally note the level of option volume yesterday relative to other days (the bottom bar chart).

This is trade analysis, not a recommendation.

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