Wednesday, August 21, 2013

Incyte (INCY) - Bio-Pharma Stock Explodes to 13-year High and Volatility Pops on Cancer Trial Results

INCY is trading $34.87, up 29.2% with IV30™ popping up 15.2%. The LIVEVOL® Pro Summary is below.


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Incyte Corporation (Incyte) is a biopharmaceutical company focused on the discovery, development and commercialization of small molecule drugs to treat serious unmet medical needs.

The news today that’s moving stock and volatility are results from a phase-two trial showing one of their compounds increased survival rates for pancreatic cancer significantly above the placebo. That is news indeed. This both an order flow and vol note.

I found INCY using the high option volume (relative to average) scan – it’s the single most active issue relative to its own average. I have included the Stats Tab snapshot. We can see that the company has already traded over 13,500 contracts traded on a total daily average volume of just 631. Calls have traded on a nearly 2:1 ratio to puts which is actually below the average of 2.8:1.

Let’s turn to the Charts Tab (two-year) 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 the price is well into multi-year high territory. In fact, according to an article by IBD, this is a 13-year high in stock price. Just extraordinary…

But here’s the thing… It is extraordinary. So what is volatility doing? I have included the two-year IV30™ chart in isolation, below.

So the implied has popped today b/c of the news… OK, that makes sense. But what doesn’t make a lot of sense to me is why the volatility is “only” up this much. If we look over the last two-years we can see that the implied hit nearly 140% at one point, and even in the last ear it has been as high as 72.29%. So my question is, why is vol at 62%. Yes the news is out, but it wasn’t expected as far as the option market reflects. Volatility is up on the day, not down. So this looks like a surprise, and if it is, 62% vol??? Hmmm…

Finally, let’s look to the Options Tab.

Across the top we can see not only is Sep vol priced to 63.51%, but Oct and Dec decrease monotonically. In fact, for all expiries out to Jan’15 the volatility decreases monotonically. You mean to tell me that this is a ~49% vol stock in Mar of next year? OK… I would definitely put this one on a watch list. In any case, aside from stock prices and option volatility, let’s hope this drug is in fact all it seems to be and even more. While prevention of illness is the first choice, a treatment (or cure) is needed if prevention falls short.

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