Monday, February 24, 2014

Endo Health (ENDP) - Earnings: Huge OTM Call Order Flow, All-time High Stock, New Volatility High. Stock is in Play.

ENDP is trading $78.49, up small with IV30™ popping up 15.3%. The Symbol Summary is included below.

Provided by Livevol

Endo Health Solutions Inc. is a specialty healthcare solutions company focused on branded and generic pharmaceuticals, devices and services.

This is an order flow note right ahead of earnings along with:
1. Stock hitting an all-time high
2. Implied volatility hitting multi-year highs
3. Extraordinarily high option volume focused on Mar OTM calls

Let's start simple with the Stats Tab for ENDP.

Provided by Livevol

We can see the company averages 531 calls traded a day, but there have already been over 10,000 calls traded today with nearly two hours left to go in the day.  Whoa... We can also see that call:put ratio is 7.5:1 today compared to an average of 1.5:1.

And, is the call volume concentrated?... yeah...

Let's turn to the Options Tab, below.

Provided by Livevol

Check out the volume (the green number) in the Mar 85 calls.  8,4,75 of those calls have traded today on an existing open interest (OI) of just 263.  In English, these are almost entirely new opening positions.

And is this one big bet or just a lot of small trades from different people?...

Well, the largest trade of the day was a purchase of 7,247 Mar 85 calls for $2.20 on a market of 1.90x2.20.  So, yeah, this is basically one big bet.

What about the stock?... The Charts Tab (two-years) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

The order flow gets even more interesting when we note that the stock hit an all-time high today (dating back more than 13 years).

Note also the reaction to the prior earnings release (the blue "E" icon represents earnings dates).  On 11-4-2013 the stock closed at $43.64.  The next day (after earnings), the stock popped to $56.22, or ~29% in a day.

Incredibly, the stock is up ~40% since even that pop as of today.  This stock is absolutely ripping.  It was $25 on 1-4-2013 and has more than tripled since then.

But there's a volatility story too...Let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

Check out how high the IV30™ is relative to the last two years.. it's at a two-year high.  So, as the stock is ripping, exploded on the last earnings release, has huge order flow in the out-of-the-money (OTM) calls in the earnings expiry, the volatility (risk as reflected by the option market) is also up to new highs.

In short, this stock is in play.

But there's more.... Finally, let's turn to the Skew Tab.

Provided by Livevol

We can see that Mar shows parabolic skew (unlike Apr), where the OTM calls are priced to higher volatility than the at-the-money (ATM) options.  In English, the option market reflects two-tailed risk here -- downside and upside.  Given the way the stock has moved in the last year, I'd say that's about right.

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

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 disclaim 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.

No comments:

Post a Comment