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Risk Alert in Option Market: Epizyme Inc Implied Price Swing Hits A Towering High




Epizyme Inc (NASDAQ:EPZM) Risk Hits A Towering High

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Risk Alert: Before we dive into any analysis we simply note that Epizyme Inc (NASDAQ:EPZM) risk is at an extremely elevated level. We'll detail it below -- but that's the lede -- the option market is flashing a neon sign that reads "risk is here" with an IV30 of 95.46% verus the IV30 of the S&P 500 at 11.15%.



One thing to note, which we cover in the article, is that while implied volatility may be high, the real question that needs to be answered for option traders is not if the impled vol is high, but rather if the realized volatility that is coming in the next 30 days will be higher or lower than the option market is pricing.

To skip ahead of this risk alert and see if buying or selling options has been a winner in Epizyme Inc, you can go here: Geting serious about option trading.

PREFACE
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 Epizyme Inc (NASDAQ:EPZM) . The creator of this model is Capital Market Laboratories (CMLviz.com).


Option trading isn't about luck -- this three minute video will change your trading life forever: Option Trading and Truth


In the "Why This Matters" section at the end of this article on Epizyme 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 EPZM 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 EPZM.





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

EPZM HV 30     42.37%
EPZM Current IV30     95.46%
52 Week Low IV30     67.08%
52 Week High IV30     127.76%


The risk as reflected by the option market has hit a towering high relative to the company's past. The option market reflects a 95% confidence interval stock price range of ($11.70, $18.10) within the next 30 calendar days.

EPZM OPTION MARKET RISK
The IV30® is the risk reflected by the option market in the stock price for the next 30 calendar days -- it's forward looking. Epizyme Inc shows an IV30 of 95.5%, which is a towering high for the company relative to its past.

The option market for EPZM has shown an IV30 annual low of 67.1% and an annual high of 127.8%, meaning that EPZM is at the 47% percentile right now. Here's a table of the data before we dig into the risk rating further.

EPZM
Current IV30    
EPZM
Low IV30    
EPZM
High IV30   
95.5% 67.1% 127.8%

The implied stock swing risk from the option market has created a range which is tighter in the next 30 calendar days for Epizyme Inc (NASDAQ:EPZM) than it has been on average for the last year on average. But, even though the IV30 percentile is below 50, other critical volatility measures that we discuss below point to extreme stock swing price risk.
Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 42.37%.




We have an unusual situation now where the IV30 is depressed relative to the past, but even with that risk pricing, the option market reflects the likelihood of a greater stock movement in the next 30-days than the stock has realized 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 Epizyme Inc is priced (95.5%) compared to what happened just in the last 30-days (42.4%).

Epizyme Inc Risk Rating
The EPZM risk rating is at 5, where the rating goes from one (the lowest risk) to five (the highest risk). The driving factors for the 5 rating are:

The IV30 is below the annual average.
The IV30 is above 90%, which is very elevated.
The HV30 is below the 20th percentile.
The IV30 is above the HV30.
The stock has moved +46.1% over the last 3-months which does indicate some elevated risk.