Shares of Onyx Pharmaceuticals (ONXX - commentary - Cramer's Take) have doubled today, up some $12.50 to $24.75 per share, and its options are among the most actively traded on news that its drug Nexavar appears to be effective in treating liver cancer.
The initial reaction sent the stock up about $8 during the first hour of trading. Early options activity was mainly focused in the February $20 strike, and implied volatility declined some 20% to a mid-40s level during the first hour, as is typical after a news event. Most of the activity seemed to indicate that people were taking or protecting profits.
But around noon, the notion that Onyx might now be a very attractive takeover candidate gave a secondary lift to the shares and ignited call-buying, causing the implied volatility in the later months to now be up on the day.
The most active strikes are still the February $20s, which have traded more than 17,000 calls and 11,000 puts so far, but the March $20 call has now traded more than 4,000 contracts against zero prior open interest and has seen implied volatility rise to the 80% level. The May $25 calls have traded more than 3,000 contracts against prior open interest of 182 contracts, and IV is up to 65% in that month's options.
Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.To read more of Steve Smith's options ideas take a free trial to TheStreet.com Options Alerts.
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