Tuesday, July 30, 2013

Synta Pharma (SNTA) - Stocks Pops, Vol Pops on Cancer News; Implied Vol is Sleepy, Stock Isn't...

SNTA closed Monday trading at $7.15, up 41.3% with IV30™ up 28.8%. The LIVEVOL® Pro Summary is below.

Synta Pharmaceuticals Corp. is a biopharmaceutical company. The Company is focused on discovering, developing, and commercializing small molecule drugs to severe the medical conditions of the patients with cancer and inflammatory diseases.

This is a note on a bio-tech which let out unexpected news and popped b/c of it, while the volatility rose with the equity price.

Let's start with some news from Monday:

What: Shares of biotechnology company Synta Pharmaceuticals Corp. soared a whopping 43% today, after results from a mid-stage study of its drug ganetespib in breast cancer patients warranted an expansion of the study.

So what: Synta said that ganetespib helped enough patients with triple-negative breast cancer to support a second stage of the trial, reinforcing optimism over the drug's blockbuster potential of treating different types of cancers. In fact, according to the American Cancer Society, triple-negative breast cancer is particularly fast-spreading and difficult to treat, so the surprising results should help Synta garner some big-pharma partnership support as well.

Source: The Motley Fool via Yahoo! Finance: Why Synta Pharmaceuticals Corp. Shares Skyrocketed, written by Brian Pacampara.

So, before we get into finance stuff, let's just take a break and read the news... Forget shareholders, stock prices ad money, let's just hope this drug turns out to be as successful as the initial results point to.

OK... Onto finance stuff again...

This is an incredible vol story. Let's start with the one-year Charts Tab 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 this $0 (zero) revenue bio-tech fell from ~$11 to ~$3.50 in just the span of a few months. With the last gap down (May/Jun of this year) we can see the implied collapsed as well. The risk reflected by the options dropped as the reality of the stock's future seemed destined to be... not a future..

Let's take a closer look at the IV30™ in isolation in the one-year chart below.

It's much easier to see the vol collapse here after the bad news (and stock collapse). More interesting though, is the continued drip-drop of the implied down to right around 60%. I have drawn that yellow horizontal line in the vol chart to indicate how low the volatility reached just before the news on Monday. What's also interesting to note is that with the news today, the stock popped and the implied did too. So, first we had stock collapsing with vol collapsing in coincidence, and now we have the total opposite.

Let's turn to the Options Tab as of the close on Monday.

We can see that the ATM straddle for SNTA in Sep is ~$1.70. The monthly vols by expiry are priced to 91.90%, 84.46% and 90.81% for Aug, Sep and Nov, respectively. Even with the IV30™ pop today, the implied is trading in just the 21st percentile (annual). The vols feels sleepy in this one... the stock, not so much...

UPDATE 7-30-2013: I am now long deltas in SNTA.

This is trade analysis, not a recommendation.

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