Monday, June 10, 2013

Elan (ELN) - Takeover Bid Shunned Again -- Options Say, "Something is Coming Soon."

ELN is trading $13.56, up 0.9% with IV30™ up 29.3%. The LIVEVOL® Pro Summary is below.


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I found this stock using a real-time custom scan. This one hunts for vol gainers on the day.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percent Change GTE 10
Average Option Volume GTE 1,200
IV30™ Change GTE 7

The goal with this scan is to identify names with rising IV30™ that also have a reasonable amount of liquidity in the options (thus the minimum average option volume) and enough strikes to spread and thus a minimum stock price. I also require a minimum vol level in order to avoid any boring ETFs (or whatever).

The six-month ELN Charts Tab is included (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 a very impressive price rise from $10.12 to now over $13.50; so over 30% in six-months.  We can also see that gap up on 6-7-2013 (aka last Friday).  This firm (ELN) is embroiled in a sort of cat and mouse game with Royalty Pharma which has made bids (and continues to make bids) for the firm, continually shunned by ELN asking for more.  Here's a quick news snippet from Friday:

Shareholders in Elan have seen a bump in the value of their stock following the latest buyout offer from Royalty Pharma. Today, the latter upped its bid for the Irish company to $13 per share, a half-dollar improvement over its most recent bid. Additionally, Royalty Pharma is willing to pay a $2.50-per-share "contingent value right" if Elan's star multiple sclerosis drug Tysabri reaches certain sales goals.

The new offer is still not good enough for Elan's board of directors. In a tersely worded response to it, the company quoted the board as saying simply that its shareholders "are strongly advised to take no action in relation to the Royalty Pharma offer."

Source: The Motley Fool via Yahoo! Finance - Royalty Pharma Increases Bid for Elan, written by Eric Volkman.

Well, there you go. In the meantime, the implied vol (risk) is elevating quite substantially for ELN shares. Let's turn to the six-month IV30™ chart, below.

We can see the abrupt rise since 5-22-2013 when the implied closed at 17%.  Today we can see it trading at 38.42% so more than a doubling in the short-term implied in just three weeks.   That is something...

Finally, let's look to the Options Tab (below).

Across the top we can see the monthly vols are priced to 48.585 in Jun and 33.545 in Jul.  Neither of those expiries should have an earnings release.  I have included the Skew Tab, below, to better illustrate the vol diff that has opened up between the front two expiries.

We can see that rather dramatic vol diff in the time spread. The option market reflects much more risk in the near-term (the next two weeks) than it does in Jul expiry. In English, the option market says, "news is coming."

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