Alexion Pharma: Elevated Vol... Even For Earnings

Alexion Pharmaceuticals, Inc. (ALXN) is a biopharmaceutical company focused on serving patients with severe and ultra-rare disorders through the development and commercialization of life-transforming therapeutic products.

This is a quick vol note before the weekend, specifically elevated vol -- but earnings are approaching. It's not so much that vol is rising, it's how much, that caught my attention.

Let's start with 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).



On the stock side, we can see a very nice run up from the mid 70's six months ago to now just under $100. A slightly more myopic view does reveal a recent sell off from $103.73 on 7-2-2012 -- the stock is down 6.4% over the last eleven calendar days.

But, as I mentioned atop, it's the vol that caught my attention. We see the rather abrupt rise in the implied as the short-term historical realized vol has stayed still (or even declined). On 6-29-2012, the IV30™ was 33.05%. As of this writing, the implied is up 55.5% from that date. The stock, on the other hand, is down 2.3% from that date. 7-2-2012 (the next trading day after 6-29-2012) was a big day for the stock, it popped more than $4 to a new 52 wk high, and vol popped 13%. Here's the only news I could find:

Reiterated by TheStreet Ratings as a Buy with a ratings score of B --
Source: Provided by Briefing.com

I'm not sure if that was the catalyst, but it's my working hypothesis for now. In any case, the vol didn't drop after the news was digested, it has continued to rise. ALXN does have earnings due out on 7-25-2012 (confirmed), so vol should be elevated. But here's the thing, why is it so elevated? I've included the six month vol chart (IV30™), below, to help illustrate the phenomenon.


I've circled the last two earnings cycles on the chart and we can see quite clearly that the implied was much lower than the current value. In fairness, for the earnings cycle on 10-20-2011 (not pictured), IV30™ hit over 53%. For the cycle before that (7-21-2011), IV30™ peaked at 34.10%. The 52 wk range in IV30™ is [27.70%, 54.78%].

Let's turn to the Skew Tab.


I hesitated to even put this in here simply because it's so "normal." We can see that Aug is elevated to the other two front expires. I do note a slight upside skew (to the OTM calls) in the earnings month (and Jul). The option market does reflect a touch of two-tailed risk (upside and downside), as opposed to Nov which shows a more "normal" skew shape.

Finally, let's turn to the Options Tab for completeness.


Across the top we can see that the monthly vols are priced to 32.30%, 51.36% and 43.34%, respectively.  It will be interesting to watch that Aug vol as earnings approach -- it should rise and may, in fact, breach that 52 wk high. It'll be equally interesting to watch the stock's reaction to the news as elevated risk (even when compared to other earnings releases) is baked in.

Disclosure: This is trade analysis, not a recommendation.