Volatility heads-up
- SLNO options volatility more than two times stock volatility
- Stock currently in multi-week trading range
- Delayed FDA decision expected soon
One of Thursday’s LiveAction scans offered a good lesson in what different types of volatility can—and can’t—tell you about what’s happening in a stock.
In early trading, biotech Soleno Therapeutics (SLNO) was in the No. 2 spot on the scan for high 30-day implied volatility (IV):
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
Of the top-three stocks—Arqit Quantum (ARQQ), SLNO, and Gorilla Technology (GRRR)—SLNO stood apart, and not because it’s a biotech rather than a tech stock.
Unlike ARQQ or GRRR, both of which have been quite volatile over the past several weeks, SLNO shares haven’t done much lately. The stock has been in a relatively tight consolidation over the past five days, and has moved mostly sideways since mid-January. That explains why SLNO’s historical volatility (HV) was toward the middle of its five- to six-month range:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
The relatively moderate HV level, which reflects the stock’s price action over the past 30 days, is far lower than its forward-looking IV. In essence, the options market was suggesting SLNO’s future volatility could be high, even though its stock hadn’t been particularly volatile lately. By comparison, both GRRR and ARQQ had higher HV than IV on Wednesday.
The question is, with SLNO’s next earnings release not expected for six to seven weeks, and its last clinical trial results released last September, what could be causing options traders to anticipate such high volatility? One explanation may be that March 27 is the working deadline for the Food and Drug Administration (FDA) to make a decision on SLNO’s application for its first drug therapy.
There are a couple of important caveats about analyzing volatility. First, IV simply reflects how much the options market expects a stock could move. Aside from the fact that the options market isn’t always correct, IV doesn’t forecast which direction prices may move. Despite these limitations, unusual IV levels can sometimes alert traders and investors to market catalysts that may not have been on their radar.
Today’s numbers include (all times ET): “Quadruple witching” expiration—stock options, index options, index futures and options, and single stock futures.
Today’s earnings include: Buckle (BKE).
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