Monday, March 26, 2012

Arena Pharma (ARNA) - EU is in Play; And Now Apr is Too...

ARNA is trading $3.03, up 25.7% with IV30™ up 41.1%. The LIVEVOL® Pro Summary is below.


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Arena Pharmaceuticals, Inc. (Arena) is a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing oral drugs that target G protein-coupled receptors, in four major therapeutic areas: cardiovascular, central nervous system, inflammatory and metabolic diseases.

News is up....

Arena Pharma says EU is reviewing weight loss drug

SAN DIEGO (AP) -- Arena Pharmaceuticals Inc. said Monday that European Union regulators have accepted its marketing application for lorcaserin, its experimental weight loss drug. Its shares climbed 30 percent to the highest level since 2010.

Arena did not say when it expects the European Medicines Agency to render a decision. The company said a panel of Food and Drug Administration advisers will review the drug on May 10.

The company is seeking approval to market lorcaserin for patients who are overweight or obese and have at least one health problem related to their weight. The drug's main ingredient is intended to stimulate serotonin receptors in the brain, making patients feel satisfied with what they have eaten.

The FDA refused to approve lorcaserin in October 2010 because the agency was not convinced it was effective, and was concerned about links to tumors when the drug was studied on rats.

Source: AP via Yahoo! Finance -- Arena Pharma says EU is reviewing weight loss drug

Let's look to the Charts Tab (six months, below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

This is just an awesome chart all the way around. The stock was trading near $1.25 a few months ago -- it's now up just under 150% since that point (in Nov 2011). The vol is exploding, up 10 nearly 170% in the IV30™ (a weighted average of two expiries). But, we'll see in a sec, in the Skew Tab, that the back months are even higher... a lot higher... The 52 wk range in IV30™ is [54.65%, 148.97%], or in English, today's level has spiked well through that annual high. If the "announcement" isn't had in Apr, we'll likely see IV30™ go well past 200%.

Let's turn to the Skew Tab.

If the Charts Tab was awesome, this is awesomer and awesomest at the same time. The option market reflects the likelihood of news outside of Apr but inside May expiry. The skew shape across the back to expiries is notably flat -- there is no upside or downside bias to the vols.

Finally, let's turn to the Options Tab.

While Apr is priced to 142.97%, May and Jul are priced to 233.27% and 223.68%, respectively. Here's where it gets interesting: Apr is actually up 36.4 vol points, while May and Jul are up just 6.4 and 0.6 vol points, respectively. So what?...

The risk that has been perceived from the EU news is reflected in the front month, rather than the back. In English, the option market now reflects the potential for stock moving news in the near-term expiry (Apr). The spread between those two months went from 120.30 vol points to now just 90.30 vol points. Yeah, it's Apr that's moving, not May (and Jul).

All of a sudden certain trades are in play for some good analysis.

...and yes, I know there's no word awesomer (or awesomest)... but here should be.  Just sayin'...

This is trade analysis, not a recommendation.

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