No edge.... Your just gambling on the premise that the implieds are high.... And you have nothing to relate what high actually is.... Good luck
Funny, I don't follow this stock, but my actuarial model is flagging it as a vol buy (well, specifically suggesting to sell Apr/May ATM calendars RTV flat). Seems like short-dated vol has been a good predictor of events in this stock and Vega is highly event-driven.
1) Spell check much? 2) The stock price behavior is more important than the drug/therapy. 3) If you know nothing about EXAS, how can you say it's "different" than DNDN?
1. Not when I am on the iphone. 2. Stock price behavior is important, but only in the context of the drug in question. 3. I don't know how controversial EXAS is, but I remember how controversal DNDN was. How they justified a 2.8 month increase in average life expectancy and justified the treatment cost of $100,000 for it. How they refused to even consider a partnership despite them requiring infrastructure to process patient's blood. And how medicare at one point rejected reimbursement. I also remember that some of the volatility had to do with difficulty in obtaining funding (affected all biotechs) and less to do with the drug itself. From what I read about EXAS, it's not the same story. EDIT: I reread my previous post - that was really messed up. I meant to say, "Even now many don't believe that drug actually works."
No, it looks like an imminent release of trial-data. If the data is released on the 22nd (or later) you're golden. To assume such massive edge in the term-structure is silly. 190-vol in the APR and 150-vol in the MAY. If APR was "safe" then the APR would be printing a vol-line near the realized vol. It would not be trading 40 handles over May, the period that will certainly encompass the data. If you can't find the fish at the table.... you are the fish. Yes, you can take a shot on the APR/MAY 10 cs here, but realize that you're likely throwing away $0.50.
The data was apparently supposed to come out either march or april. For all we know it could come out tonight. I agree that there isn't edge unless you *know* that there is edge.
Certainly went through my biotech phase. We'd see vols of 500-700 sometimes as expiry approached. Price based on event. There's so much uncertainty, that vol trading only makes sense. I'd guess 2 on failure. The market likes to do certain things. I don't know anything about this, but sle is probably correct about low vol, this was often the case. OC had a killer call calendar spread on one of these, based, I think, on projected cash flows. Trading 35 strike on a $20 stock, as I recall. UL went straight to his strike. Low risk, high reward trade. Wouldn't even consider trading one of these, nowadays. Now I got it on my screen, dammit, because it is interesting.
Sorry, I think my original post was not very clear. The reason I think the market is wrong is because people, except for the MDs who are going to attend the various summer Medical conferences, do not understand the difference between FDA approval of a diagnostic test and approval of a new drug in which side effects and toxicity are the main worry. For EXAS' DNA colon cancer (and pre cancer) test, there are no worries about side effects. What the FDA is worried about is the danger from approving a test that does not work, i.e. people avoid the Colonoscopy test when they should not because the EXAS test does not work. The EXAS test is a less unpleasant pre-screening test. People with potential problems then get the more expensive Colonoscopy that also has some negative health risks. Some kind of DNA marker test will surely eventually be introduced. Is the EXAS test not yet accurate enough (there are very complicated statistical measures involved)? Will medical insurance immediately approve paying for the EXAS test? The entire process will take a long time so releasing results is good for EXAS and good for PR people, but not really so important for long term economic success of EXAS (value of buy out?). What is important is the reaction of cancer specialist over the summer to the scientific papers. I do not know anything other than that release of preliminary results in a PR are stock trader and hedge fund investor world information that is not relevant to the EXAS business over time. It is already known from a smaller test that the patented EXAS DNA test gets good results. I think many of the hedge fund short are thinking that the EXAS is a fraud and maybe results were made up. Mayo Clinic is involved in the development and execution of the test. Is it possible that the Mayo doctors involved are fraudsters, yes, but I see this is a minor risk. I think many of the long call option lottery ticket buyers are wrongly calculating immediate EXAS income as <US population over 50> times $300. Is the test PR going to influence ultimate FDA approval/rejection of the test, yes, but this sort of complex new bio-chemical test takes a long time to roll out. The situation is not like a new wonder drug where good test results with low side effects, means immediate stock price jump. The put/call parity mathematics(means that if either put or call traders are willing to pay huge premiums, IV for both puts and calls will be high. The problem is that the mathematics does not apply when normal scientific (medical) practice provides additional knowledge.
Nice chart of how EXAS iv has ramped up from about 0.6 to near 2.0 since Jan. 2013 http://www.optionistics.com/quotes/stock-prices/EXAS