Friday, January 3, 2014

Aegerion Pharma (AEGR) - Calendar Spread Opens; Options Read: Elevated Downside Risk in Short-term

AEGR is trading $72.51, up 0.2% with IV30™ down 2.0%. The LIVEVOL® Pro Summary is below.

Provided by Livevol

Aegerion Pharmaceuticals, Inc. (Aegerio) is a biopharmaceutical company focused on the development and commercialization of therapeutics to treat lipid disorders. As of December 31, 2011, the Company developed its first product candidate, lomitapide, as an oral, once-a-day treatment for patients with a inherited lipid disorder called homozygous familial hypercholesterolemia (HoFH).

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.  Note that this is a bio-tech company.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

Let's start with the Skew Tab, below.

Provided by Livevol

I note two things:

1. First, obviously ever strike in Jan is priced above Feb in terms of volatility.
2. Second, that vol difference expands between the two months as we move to the out-of-the-money (OTM) puts. We'll come back to that in a second.

To read more about skew, what is and why it exists you can click the title below:
Understanding Option Skew -- What it is and Why it Exists.

Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

On the stock side let's note that this was a ~$13 stock not too long ago and it's now trading above $72.50 with an annual high of $101.  Whoa... That has taken the market capitalization above $2 billion.

Let's also note the tendency of this stock to move rather abruptly on earnings releases (the blue "E" icons represent earnings dates).  Just look at the last three...

Finally, I note that the stock has reached, for now, a sort of equilibrium -- $70 is about fair value per the equity market right now for the last couple of months.

Now let's turn to the one-year IV30™ chart in isolation, below.

Provided by Livevol

I include this chart simply to demonstrate that the implied is a bit elevated relative to the last year, but still in a range that looks kinda "normal" for this firm.

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

Provided by Livevol

Across the top we can see that Jan vol is priced to 81.75% while Feb vol is priced to 69.87%.  But, here's where that skew shape comes into play.

While Jan to Feb shows ~12 vol point difference in the at-the-money (ATM) options, check out, as one example, the Jan/Feb 60 put spread.  That shows a vol difference of 94.67% to 76.13% or ~ 18 vol points.  The option market reflects greater downside risk in the near-term for AEGR relative to the medium-term.  That creates a nice calendar vol spread to analyze.

This is trade analysis, not a recommendation.

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