Thursday, March 10, 2011

Xenoport (XNPT) - Bio-tech with Two Events and Order Flow

XNPT is trading $7.09, down 3.1% with IV30™ down 1.2%. The LIVEVOL™ Pro Summary is below.


For a limited time we are offering a FREE real-time trial to Livevol Pro™ for non-professional traders. Click for Free Trial Offer

XenoPort, Inc. is a biopharmaceutical company focused on developing and commercializing a portfolio of internally discovered product candidates, which utilizes the body’s natural nutrient transport mechanisms to improve the therapeutic benefits of existing drugs.

Here's the deal (or part of the deal):
Xenoport(XNPT) and GlaxoSmithKline(GSK)
Drug/indication: Horizant for restless leg syndrome
Approval decision date: April 6, 2011
This is the second FDA review cycle for Horizant. The original new drug application was filed to FDA in January 2009.
Source: Biotech Calendar: 2011 FDA Drug Approvals, By Adam Feuerstein.

I also caught wind of this:
While most biotech investors are more focused on Xenoport’s (XNPT) PDUFA date for Horizant (gabapentin enacarbil), a treatment for restless leg syndrome, there exists a reasonably significant catalyst prior to that event. That catalyst is the Phase IIb data for arbaclofen placarbil (AP), a prodrug of (R)-baclofen, for gastroesophageal reflux disease (GERD) in patients that respond to proton pump inhibitor (PPI) therapy – scheduled for release sometime in the first quarter of 2011.
Source: Xenoport Expecting GERD Study Data , By Rockford Coscia.

Ah ha... Two vol events...

The company has traded over 5,200 contracts on total daily average option volume of just 827. Calls have traded on a nearly 30:1 ratio to puts. But it's call selling, that I see. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Apr 11 calls have traded more than 3,500x and are mostly opening (compare OI to trade size). The trades look to be substantially sales @ $1.00.

The Skew Tab snap (below) illustrates the vols by strike by month.

It's tempting to think that Mar vol (red) is low -- it certainly is relative to Apr. But Mar vol is actually ~160 with parabolic skew (rising to both upside and downside).

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

We can see the stock has stayed in a range for a few weeks as the IV30™ has taken off. There is risk here -- a lot of it.

Possible Trades to Analyze
1. If, and that's a big if, you want to bet that there is some big news coming in the Mar cycle, you can examine purchasing the Mar 7 straddle for $1.30. Sure, that's a lot for a $7 stock, but for a bio-tech... well, if there is definitive news (one way or the other) -- the stock can move a lot more than that.

Of course, then again, the news could fall flat (or not occur at all) or the investing world could be so focused on the FDA decision in April that nothing moves the stock until then.

2. If you want to bet that the stock will not move in Mar, you can examine:
Sell the Mar 7 straddle @ $1.25
Buy the Mar 6/8 strangle for $0.65.
Collect $0.60 and risk $0.40 for a 1.5:1 MaxGain:MaxLoss ratio.

3. I'm not gonna touch the April bets, except to say, #2 (or the opposite of #2) in April on various strikes are worth a look if you like to gamble on bio-techs. DON'T BE NAKED SHORT OR LONG in my opinion.

Keep in mind someone just sold the April upside/vol today, for whatever that's worth (if anything).

This is trade analysis, not a recommendation.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

Legal Stuff:

No comments:

Post a Comment