More Volatility Seen in Biotech
By MARCELO PRINCE
DOW JONES NEWSWIRES
April 28, 2004; Page C3
NEW YORK -- Stocks seesawed, and options volatility increased, as traders were encouraged by positive economic data and strong corporate-profit reports but worried by reports of violence in the Middle East.
Major-market averages rose early on a report that showed consumer confidence in the economy improved in April. But stocks surrendered much of their gains amid reports of explosions in Fallujah, as U.S. gunships attacked targets in the city. There were also explosions and gunfire in Damascus. The Chicago Board Options Exchange volatility index, or VIX, rose 0.30 to 15.07.
Options on biotechnology stocks continued to trade heavily, as investors anticipate price movements in these volatile issues. Among the most popular was Genta, which will release its quarterly earnings report tomorrow morning and awaits an FDA committee meeting on its skin-cancer drug, Genasense.
Shares of the biotech firm rose 14%, or $1.97, to $16.35. Implied volatility on its May puts was 155%, suggesting traders expect the stock to move sharply.
"Cancer seems to be the magic word, not volatility," said Michael Schwartz, chief options strategist at Oppenheimer. He noted that options of Genentech and OSI Pharmaceuticals were active Monday after the companies released positive data on their Tarceva lung-cancer drug.
More than 42,000 of Genta's May 15 puts changed hands, as investors likely sold these contracts to collect a rich premium. These puts, which had open interest of 7,853 contracts, were $3.70 at the CBOE. Genta's May 25 calls were also briskly traded, with more than 45,000 contracts changing hands. The May 25 calls, which had 2,395 open interest, rose $1.45 to $1.90 at the Philadelphia Exchange.
Write to Marcelo Prince at marcelo.prince |
