Monday, January 6, 2014

Aegerion Pharma (AEGR) - UPDATE: Stock Gaps, Volatility Explodes... But We Knew This Would Happen on Friday... Didn't We?

AEGR is trading $68.82, down 6.4% with IV30™ exploding up 19.8%. The Symbol Summary is included below.

Provided by Livevol

Aegerion Pharmaceuticals, Inc. (Aegerio) is a biopharmaceutical company focused on the development and commercialization of therapeutics to treat lipid disorders

This is a follow up to the article I posted on Friday (1-3-2014) which specifically noted the rising downside risk in AEGR as expressed by the options. You can read that post by clicking on the title below:

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

The Symbol Summary from Friday is included below, as a reference.  Note the difference in the stock price and the IV30™.

Provided by Livevol

Here's a quick summary of that post, below:


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.

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

Provided by Livevol

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.

And now, back to today.  The stock is down, the volatility is exploding, and how about that skew? Let's turn to the Skew Tab today:

Provided by Livevol

Check out those vol levels relative to the ones in the Skew Tab from Friday (above).  To make it explicit, I have included the Options Tab, for Just January, below.

Provided by Livevol

Explicit comparisons:

Provided by Livevol

So we can see a pretty much across the board rise of 25 vol points in each strike.  Who would have thought the stock would gap down before January 17th (Jan expiry)?... Oh wait...

This is trade analysis, not a recommendation.

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