Monday, September 16, 2013

Medivation (MDVN) - Volatility Breaches Annual High in Cancer Drug Bio-tech Up 600% in Two-years; Another Event is Coming

MDVN closed Friday at $59.74, down 0.50% with IV30™ up ~4%. The LIVEVOL® Pro Summary is below.

Medivation, Inc. is a biopharmaceutical company focused on the development and commercialization of novel therapies. The Company advanced program XTANDI (enzalutamide) capsules, or XTANDI, is partnered with Astellas Pharma Inc. ( Astellas).

I found this stock using a real-time custom scan. This one hunts for elevated vols. This a note on a stock with rising volatility which is now at an annual high, and a stock which has seen more than 600% growth in two-years.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The two-year MDVN 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 that this was an ~$8 stock just two-years ago, and has now found its way to nearly $60. A remarkable return. We can also see that MDVN has certainly found an equilibrium stock price well above $50 (more than in a sec).

But this is a volatility note, so let’s turn to the two-year IV30™ chart in isolation, below.

So, there are three phenomena relating to the volatility that make this such an interesting case study.

(1) The current IV30™ is at an annual high, yet earnings just came out in Aug – this is a non-earnings event driven volatility we’re seeing.

(2) The implied in this stock has seen meteoric levels as of two years ago – we’re talking more than 220%. But, in all fairness, this is an entirely different company now, just look at the stock price.

(3) The current level of IV30™ is wildly elevated to any measure of historical realized volatility. Here are some comps:

IV30™: 94.73%
HV10™: 20.45%
HV20™: 26.29%
HV30™: 27.46%
HV60™: 32.72%
HV180™: 36.76%

So in English, the risk reflected by the option market (IV30™) is 2-4x higher than the realized movement of the stock over almost any time horizon ranging from the last 10 trading days, to the last 180 trading days (~9 calendar months). It seems pretty apparent that there is an event coming soon. The Options Tab proves the final point quite well.

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

Across the top we can see Sep is priced to 65.72% while Oct is priced to 94.69%. Nov then dips to 79.47%. That vol differential points to some sort of event in Oct – a rather large one. A cancer drug bio-tech, I think we’re looking at an FDA panel hearing or late stage clinical trial results. This is going to be a fun one to watch.

This is trade analysis, not a recommendation.

Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.

The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.

I specifically disclaims any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.

I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.

1 comment:

  1. Hi Ophir,

    I'm curious to know how an event is factored into the IV when the event is not public knowledge. In other words, how are option market makers aware of an event to incorporate this into IV?