Sunday, February 1, 2015

SPPI: IV Rips Alongside Short Interest

First and foremost, I know absolutely nothing about SPPI other than it's a biotech with a market cap of $455m and no earnings. But here's what I do know:

1. Short interest is at 52 week highs
2. The stock is 10% above its 52 week low of 6.36 (52wk high is 9.27)
3. IV60 is well above 2 year highs and IV30 is currently in the 94th percentile
4. As of Friday, January 30, there were 1.53 puts in open interest for every call. (8686 puts to 5675 calls)
5. On Friday, there was a large March 7 call buyer, snapping up about 3400 of those calls for .85, about $287k in premium. I take that trade with a grain of salt based on the high short interest. 
6. The March straddle is priced at 1.70, which prices a move of |24.3%| by March expiry.

Since June, short interest in the name has increased 35% to currently being 30% of the float:

Short interest isn't the only thing ripping in SPPI, implied volatility has also recently spiked in the name with March IV overtaking the front month in terms of pricing. The red line is the implied volatility looking out 30 days and the yellow line is implied volatility looking out 60 days. Earnings are expected in March, but as you can see from the IV chart this earnings event is anticipating more risk than in any one of the past two years of releases.

My worthless take: I don't know which way SPPI is going to move, but I expect that if/when it does move, it will probably be prior to March opex and will most likely rip one way or the other. Based on short interest, it looks like the expected move is down.

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