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How Much Higher Can Amarin Stock Surge?

Oleksandr Pylypenko - Author

Dec. 10 2019, Updated 6:58 a.m. ET

In the November 15 premarket trading session, Amarin Corporation (AMRN) stock rose more than 7%. This was due to the unusual volume caused by Thursday’s FDA positive decision backing the cardiovascular benefit for Vascepa. Currently, it is trading at $24.23, up 12.77% from the previous session. However, this performance lagged the S&P 500’s 0.61% rise yesterday. Also, the Dow Jones gained 0.64%, while the Nasdaq surged 0.60%.

In addition, there have been many bullish bets placed on the stock, suggesting that it could surge higher in the coming weeks and months. Having said that, I’d like to discuss the stock’s recent options trades and what investors can expect going forward. 

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Bullish options bets on Amarin stock

During Friday’s trading session, there were more than 15 bullish options trades for Amarin stock. Having said that, I would like to highlight the largest options trades in the paragraphs below.

The options, which expire on January 17, saw increased call buying early this morning. Also, the open interest for the $25.00 calls rose by 42,859 contracts to a total of about 43,000 open contracts. However, it seems like a huge, bullish bet as the transaction’s total dollar value stands at about $12 million. A buyer of those calls would need the stock rise to $27.75 by the expiration date. This is a gain of about 15% from AMRN stock’s current price

Additionally, the open interest levels for $35.00 calls, which expire in January, saw significant bullish activity during today’s trading session. Also, again per barchart.com, the open contracts rose by 41,036 contracts to about 41,247. A buyer of the calls would need the stock rise to $35.50 by the expiration date to earn a profit. That’s a gain of about 46% from Amarin stock’s current price.

Finally, in the November 15 trading session, the open interest for the $30.00 calls, which expire on January 17, 2020, rose by 20,887 contracts to a total of 20,986 open contracts. A buyer of the calls would need the stock rise to $31.20 by the expiration date to break even. 

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12% move in AMRN

The implied volatility for the options, at a $25.00 strike price that expires on January 17, 2020, stands at 75.64%. This number means that investors are expecting an event that could cause significant movement in one direction or the other. By comparison, the SPDR S&P 500 ETF (SPY) implied volatility level stands at 10.74%. This means that the Amarin stock expected to be more volatile than the overall market in the coming weeks.

Looking at the January 17 options, we can see a bid and ask for the $25.00 call option of $ 2.78 and $ 2.85, respectively. Also, we can see a bid and ask for the $25.00 put option of $ 3.50 and $ 3.80, respectively. You should bear in mind that the options strike closest to the Amarin price of $24.23 at the moment of writing. We can calculate the expected price move using the mid-prices of these options:

3.65 (25.00 Put) + 2.815 (25.00 Call) = 6.465/24.23 = 26.57%

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As you can see, the options imply that Amarin stock could rise or fall by ~26% by January from the $25.00 strike. To estimate the expected price move, we utilize options long straddle strategy. This assessment would place the stock in a trading range of $17.93 to $30.53 by the expiration date. Moreover, the calls at the $25.00 strike price outweigh the put options about 100:1 with 42,859 open calls to 514 open puts. Additionally, the calls at the $30.00 strike price significantly outweigh the put options with 20,887 open calls to just 262 open puts. 

More upside ahead for Amarin stock

A buyer of the $30 strike price calls would need the stock to rise to around $31.33 by the expiration date to break even. As the imbalance between open calls and open puts shows, market sentiment for the Amarin stock appears strongly bullish. I expect upside going forward.

Looking for more analysis regarding biotechnology stocks? Check out Bristol-Myers Squibb Earnings: Time to Buy BMY Stock?


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