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. 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.