Options activity may be used as a starting point for investors looking for companies that are expected to make big moves in the sessions ahead. As long as the share price of a company did not already have a big price swing, options with high volatility suggest bigger changes in stock prices. In the drug sector, investors could look at the option activity as a starting point for possible investing ideas. [View list snapshot here.]
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1) Amarin Corp. (AMRN, Earnings, Analysts, Financials)
The implied volatility for Amarin shares is over 60%, with a high volume of contracts for an April expiry at a $7 exercise price. Amarin shares closed recently at $7.41. An analyst at Chardan Capital Markets recently ranked shares as a hold. The analyst cited that the chances of a takeover are low and risks in the Vascepa launch as a reason for an $8.50 target price.
Vascepa competes with Lovaza. Even if Vascepa proves to be the preferred drug, the risks for investors in the short-term are effective marketing and a strong sales team to support sales.
2) Ziopharm Oncology (ZIOP, Earnings, Analysts, Financials)
Regardless of the high implied volatility for Ziopharm, investors should avoid the company. Fundamentals changed to the downside, and the future of the company is now uncertain.Ziopharm shares collapsed after reporting that its most advanced product that could trade cancer, failed in a late-stage study. With no products on the market, Ziopharm will face a cash crunch. The company is making immediate changes to its strategy, and will now focus on synthetic biology programs. Implied volatility is over 120%.
3) Gilead Sciences (GILD, Earnings, Analysts, Financials)
Even after an undisturbed rise in Gilead, shares broke out from $45, closing recently at $48.94. The implied volatility ranges from 27% - 30.7%. The company provided a clinical trial update for its ION-1 study. The study evaluates taking two drugs concurrently to treat hepatitis C. A safety board review concluded that the study should continue without any modification.
If the treatment is approved, the drug could generate sales of $6 billion or more.
Written by Chris Lau