Option Market Alert Aduro Biotech Inc Implied Price Swing Hits An Elevated Level

Option Market Alert: Aduro BioTech Inc Implied Price Swing Hits An Elevated Level

Aduro BioTech Inc (NASDAQ:ADRO) Risk Hits An Elevated Level

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Risk Alert: Before we dive into any analysis we simply note that Aduro BioTech Inc (NASDAQ:ADRO) risk is elevated. We'll detail it below -- but that's the lede -- the option market is starting to flash those neon lights that signal "risk is rising" with an IV30 of 73.28% verus the IV30 of the S&P 500 at 11.15%. The annual high for Aduro BioTech Inc IV30 is 148.2%.

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This is a proprietary risk rating and risk alert system that looks forward for the next month -- or really 30 days to be exact -- and that includes weekends. The system is based on multiple interactions of data points, many of which come directly from the option market for Aduro BioTech Inc (NASDAQ:ADRO) . The creator of this model is Capital Market Laboratories (CMLviz.com).

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In the "Why This Matters" section at the end of this article on Aduro BioTech Inc we're going to take a step back and show in great specificity that there is actually a lot less "luck" in successful option trading than many people know. The whole concept of an "option trading expert" is vastly over complicated and we'll talk about how superior returns are earned.

But first, let's turn back to ADRO and the company's risk rating:

We also take a peek at the implied vol for the Health Care ETF (XLV), our broad based proxy for ADRO.

S&P 500 IV30     11.15%
Nasdaq 100 IV30     12.44%
XLV IV30     11.89%

ADRO HV 30     58.51%
ADRO Current IV30     73.28%
52 Week Low IV30     71.73%
52 Week High IV30     148.2%

The implied price swing risk as reflected by the option market has hit an elevated level relative to the company's past. The option market reflects a 95% confidence interval stock price range of ($7.70, $10.80) within the next 30 calendar days.

The IV30® is the implied price swing risk reflected by the option market in the stock price for the next 30 calendar days -- it's forward looking. Aduro BioTech Inc shows an IV30 of 73.3%, which is an elevated level for the company relative to its past.

The option market for ADRO has shown an IV30 annual low of 71.7% and an annual high of 148.2%, meaning that ADRO is at the 2% percentile right now. Here's a table of the data before we dig into the implied price swing risk rating further.

Current IV30    
Low IV30    
High IV30   
73.3% 71.7% 148.2%

The implied stock swing risk from the option market is extremeley tight in the next 30 calendar days for Aduro BioTech Inc (NASDAQ:ADRO) relative to the average in the last year. But, even though the IV30 percentile is below 50, other critical volatility measures that we discuss below point to elevated swing price risk.
Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 58.51%.

We have an unusual situation now where the IV30 is extremely depressed relative to the past, but even with that risk pricing, the option market reflects the likelihood of more stock movement in the next 30-days than it has in the last 30-days. Let's turn to a chart to see what's going on.
Note how much higher the forward looking stock swing price risk for Aduro BioTech Inc is priced (73.3%) compared to what happened just in the last 30-days (58.5%).

Aduro BioTech Inc Risk Rating
The ADRO risk rating is at 4, where the rating goes from one (the lowest risk) to five (the highest risk). The driving factors for the 4 rating are:

The IV30 is below the 20th percentile.
The IV30 is above 70%.
The HV30 is below the annual average.
The IV30 is above the HV30.
The stock has moved -16.7% over the last 3-months which does indicate some elevated risk.