Tuesday, March 25, 2014

Galectin Therapeutics (GALT) - Event is Coming Monday; Option Market May Have Under-priced Risk... So Far.

GALT is trading $16.79, up 15.1% with IV30™ exploding up 31.8%. The Symbol Summary is included below.

Provided by Livevol

Galectin Therapeutics Inc., formerly Pro-Pharmaceuticals, Inc. is a development-stage company. The Company is engaged in drug development to create therapies for cancer and fibrotic disease.

GALT is a $350MM biotech with $0 (zero)  in revenue.  Today, this news crossed the wire from the firm:

NORCROSS, Ga., March 25, 2014 (GLOBE NEWSWIRE) -- Galectin Therapeutics (GALT)[] announced that on Monday, March 31, 2014, the Company will report results from the first cohort of its Phase 1 clinical trial examining GR-MD-02 in fatty liver disease (NASH) with advanced fibrosis. The first-in-man study, which enrolled eight patients in the first cohort, is evaluating the safety, tolerability, and exploratory biomarkers for efficacy for single and multiple doses of galectin inhibiting drug GR-MD-02 when administered to patients with fatty liver disease with advanced fibrosis.

Source: GlobeNewswire via Yahoo! Finance Galectin Therapeutics to Announce Results From First Cohort of Phase 1 Clinical Trial in Fatty Liver Disease

The stock opened flat, then moved up nearly 30% in the first 30  minutes of trading.  I do note that the stock has dipped and lost ~2/3 of the initial pop.  At the same time Apr volatility ripped from 150% up to 190% on the news, but it was interesting that the volatility rise took a few hours.

The Tick Chart is included below.  The top portion is the stock price and the bottom portion is April implied volatility.

Provided by Livevol

Again, note that the stock price rose and has fallen off the highs while the volatility has maintained (pretty much) its heights.

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

On the stock side we can see that this was a ~$1.65 stock at one point and is now literally more than 10-fold higher.

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

Provided by Livevol

That first vertical line straight up was simply the beginning of option trading for the firm.  Since then we can see the vol rise substantially, and in particular the explosion today.  All of this behavior is perfectly normal.  In fact, I have a sense the implied is actually a bit low considering the stock is up 1000% with no revenue and this event appears to be pretty huge for the firm's future.

Let's turn to the Skew Tab snap (below) which  illustrates the vols by strike.

Provided by Livevol

We can see a beautifully parabolic skew, where the option reflects essentially even likelihood of a big tail move in either direction.  This is "abnormal" for a standard company, but very much normal for a biotech with a huge event.

While I know nothing about this firm, I do note how large a market they must be pursuing given that the upside skew is bid even after a 1000% gain in stock price.  But there's something else about the vol that does have my eye.

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.

Provided by Livevol

So here it is.  The skew is parabolic, which in this case is expected.  But, if the stock is up 1000%, this event seems to be quite important considering the firm has $0 revenue and it's a Phase 1 trial on 24 total people, eight of which appear to be on the drug (or whatever).  Isn't that an incredibly risky event with a massive amount of uncertainty?

I think the wings (out of the money calls and puts) should be more expensive than the at the money options, but right now, per the Options Tab above, the stock range for GALT by Apr 18th is [$11, $24] based on the $17.5 strike straddle.  That's a wide range, but... is it wide enough?...

I guess we'll see very soon.

Just to be clear, I am NOT recommending a purchase of options, or anything for that matter. I'm just making a casual observation. I am not legal licensed to give advice nor does any of this writing intend to be advice.

This is trade analysis, not a recommendation.

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