UPDATE: ARNA - Bio-tech Review

Discussion in 'Options' started by livevol_ophir, Sep 14, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    * UPDATE

    ARNA is trading $4.40, down 35.8% with IV30&#8482 up 7.5%.

    <img src ="http://2.bp.blogspot.com/_hMry1m7UF10/TI9__P2MJeI/AAAAAAAAEu8/AubvdiTMopM/s1600/arna_summary_9-14-2010.gif">

    On Thursday, July 29, 2010 I wrote:
    <b><a href="http://livevol.blogspot.com/2010/07/arna.html">Arena Pharma (ARNA) - Big Bio-tech Vol Yields Trade</a></b>

    ARNA was trading $6.45. The Livevol Pro summary from that date is included below.

    <img src ="http://1.bp.blogspot.com/_hMry1m7UF10/TI9__sJ51aI/AAAAAAAAEvE/1mHjOWo49eU/s1600/arna_summary.gif">

    If you recall, we looked at a crazy 6 way spread which peaked PnL with the stock at $4 or $8 (ish) on Sep expo. The PnL chart is included (<a href="http://livevol.blogspot.com/2010/09/update-arena-arna-bio-tech-review.html">in the article</a>).

    Note that the dip on the upside PnL was between $5 and $7. This was done on purpose. It would reflect a belief that ARNA will be moving away from its then current price ($6.50). With the stock movement today, this trade actually worked out pretty well.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:

    Legal Stuff:
    <a href="http://www.livevolpro.com/help/disclaimer_legal.html">http://www.livevolpro.com/help/disclaimer_legal.html</a>
  2. medisoft



    Can you put a link to learn more about IV30?
  3. livevol_ophir

    livevol_ophir ET Sponsor

    IV30&#8482 is a trademarked measure by Livevol.

    Volatilities marked as IV are for options (Implied Volatility). Volatilities marked as HV are for stock (Historical Volatility).

    IV30&#8482 is the volatility of the hypothetical 30 day option (similarly IV60&#8482 and IV90&#8482 are the corresponding hypothetical volatilities for sixty day and ninety day options respectively).

    HV30&#8482 is the realized volatility of the underlying. Similarly, HV10&#8482, HV20&#8482, HV60&#8482 and HV90&#8482 are the corresponding realized volatilities for the appropriate period.

    To compute IV30&#8482, we take a weighted average of the strikes in two months; where each month is weighted appropriately and each strike is also weighted appropriately (greatest weight for the ATM strikes). The exact formula is proprietary.
  4. spindr0


    Maybe I'm missing it but I don't see option legs of the spread in your link. What were they? Thx
  5. livevol_ophir

    livevol_ophir ET Sponsor

    The link to the previous article is at the top of the post.