Friday, March 7, 2014

Aegerion Pharma (AEGR) - How to Make $865K in 3 Hours; Stock Explodes Midday; Risk in Mar Explodes With It

AEGR is trading $52.50, up 4.6% with IV30™ up 20.7%. 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 volatility, stock and suspicious order flow note on a pharma that has seen some rather unusual activity in the stock price of late.  In fact, let's start with today.  I have included the tick chart (1-minute) for AEGR, below.

Provided by Livevol

Note that the stock opened at $50.15, hit a low of $47.11, and then exploded up to $58.08 in a matter of minutes, before falling back down to the mid range of $52.50.  As I'm writing, the stock has moved back up to $55.19.

So what happened today?  I have no idea... But someone else may have an idea. Let's first turn to the Stats Tab, below.

Provided by Livevol

Simply said, the company averages 977 calls traded across all strikes and all expiries per day.  So what?... Well, this trade came across the tape two hours before that stock pop:

Provided by Livevol

1800 Mar 50 calls were purchased for $2.20.  As of the close, those calls are worth ~$7.00.  That's 1800x100x($7.00 - $2.20) = $864,000 profit in three hours.

Now let's turn to a broader view of the stock and volatility, and hope that $864K winner was in fact not a cheater.

The Charts Tab (1.5 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

Note that the stock was ~$20 and has risen more than 150% in the last 18 months.  But, also note the rather staggering stock drop since the peak off of earnings of $101 on 10-30-2013.  From that point, the stock is down ~45%.  So, timing is everything as to whether this was a winning investment over time.

But there's an oddity in the volatility that I see.. and it's really odd. Let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

Note that the IV30™ hit ~95% in January and has been dipping since then even as the stock has dropped from ~$75 at that time.  Normally a stock's implied volatility rises as the stock price drops.  And a baby pharma, lower volatility with a catapulting price -- that's not something you see everyday.

But take a look at the tail end (the right hand side) of that volatility chart.  We see a spike of late, and by the movement of the stock today, I'd say more risk reflected by the option market sounds about right.

But something is afoot in AEGR, and we can see it in the next two images.  First, the Skew Tab snap (below) illustrates the vols by strike by month.

Provided by Livevol

Note that Mar volatility is elevated to Apr across all strikes. We know that AEGR just released earnings on 2-26-2014, so that ain't earnings vol, but it may be "event" vol.  Let's turn to the Options Tab to see that volatility difference, numerically.

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, the Options Tab is included below (midday quotes, not the close).

Provided by Livevol

We can see across the top (the green numbers) that Mar vol is priced to 80.02% up 18.1 volatility points today, while Apr vol is priced to 68.61% up 8.4 volatility points.

So, two phenomena here:
1. Again, Mar is clearly elevated to Apr.
2. As of yesterday, Mar and Apr vol were pretty much the same.

So... Something happened today, some news, some event, some "something" that not only popped the stock midday, but also pushed the risk in Mar substantially higher than Apr as reflected by the option market.

This is trade analysis, not a recommendation.

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1 comment:

  1. Clinical breakdown of that trade. If the SEC were conducting their "investigations" in the same manner that you are a lot more shady things would be detected and stopped. Well done!