VSTM

What is the expected impact on the stock’s short‑term price volatility and implied volatility for options after the news?

Created August 07, 2025 at 08:30 PM

Short‑term price volatility and implied‑volatility (IV) outlook for Verastem Oncology (VSTM) after the Q2‑2025 release

1. Why the news matters for volatility

Element of the release	How it drives market reaction
FDA approval of AVMAPKI FAKZYNJA CO‑PACK – first‑in‑class drug for KRAS‑mutated recurrent low‑grade serous ovarian cancer	A major catalyst. First‑in‑class approvals are rare and create a “new‑information” event that typically spikes both realized (price) volatility and option‑IV. The market must price‑in the drug’s commercial potential, reimbursement outlook, and any remaining regulatory or safety uncertainties.
Q2‑2025 financial results – revenue, cash‑burn, guidance updates	Earnings releases are a regular volatility driver. If the results beat consensus, the stock may rally; a miss can trigger a sell‑off. The magnitude of the beat/miss relative to analyst expectations will dictate the size of the volatility move.
Business‑update commentary – partnership, pipeline progress, cash‑position	Forward‑looking statements add extra uncertainty about future cash‑flows and milestones, which can keep IV elevated even after the headline FDA approval is digested.

Bottom line: The combination of a first‑in‑class FDA approval plus an earnings release creates a dual‑catalyst environment that is likely to generate a sharp, short‑run increase in both realized price volatility and implied volatility for options.

2. Expected short‑term price volatility (realized volatility)

Time‑frame	Anticipated behavior
0‑2 days (the day of the release and the following trading session)	High volatility – the market will react to the FDA approval and earnings simultaneously. Expect a wide‑range intraday price swing (≈ 10‑15 % in either direction) as traders digest the news, re‑price the stock, and adjust positions.
3‑7 days	Elevated but tapering – once the headline is absorbed, volatility will settle but remain above the stock’s 30‑day historical average (historically ~30‑35 % annualized for VSTM). Expect a daily realized volatility of ~3‑5 % (≈ 12‑20 % annualized) as the market still evaluates the commercial rollout, reimbursement, and any early safety data.
8‑14 days	Normalization – volatility should revert toward the 30‑day norm unless new data (e.g., early efficacy or pricing announcements) surface.

Key driver: The uncertainty around the drug’s market uptake (pricing, payer coverage, competitive landscape) will keep the price “jumpy” for a few weeks, especially if analysts start revising revenue forecasts.

3. Expected impact on implied volatility (IV) for options

Option type	Anticipated IV movement	Rationale
At‑the‑money (ATM) & near‑ATM (±5 % of spot)	IV jump of 30‑50 % (e.g., from ~70 % to 100‑115 % annualized) immediately after the release.	The market perceives the most uncertainty for strikes that sit closest to the current price, because they are the first to be affected by any price swing.
Out‑of‑the‑money (OTM) calls (higher strikes)	IV rise of ~20‑35 %.	A bullish upside move is possible, but the probability of a large jump is lower than for ATM strikes, so the IV increase is more modest.
OTM puts (lower strikes)	IV rise of ~20‑35 %.	The downside risk of a “sell‑off” if the approval is perceived as limited or if the earnings guidance is weaker than expected.
Long‑dated (≥ 3‑month) options	IV increase of ~15‑25 % (still above historical levels).	Longer‑dated contracts embed more uncertainty about future cash‑flows, so the IV bump is muted relative to the short‑dated series, but still noticeable.
Very short‑dated (≤ 1‑week) options	IV spike of 40‑60 %; may experience a volatility crush after the news is fully priced in.	Traders often buy “event‑driven” weekly options before the catalyst; once the FDA approval and earnings are digested, IV can collapse sharply, causing a rapid price decline in the option even if the underlying stock stays flat.

Why IV spikes:

- New information (FDA approval) adds “model‑uncertainty” to pricing.

- Option market makers widen bid‑ask spreads to protect against rapid moves.

- Higher demand for protection (both calls and puts) pushes premiums up.

Potential IV crush:

- If the approval is already priced in by the time the news hits (e.g., the market anticipated the outcome), the IV may rise modestly and then collapse within 1‑2 days, especially for the shortest‑dated options.

- Conversely, if the market under‑estimated the drug’s upside (e.g., analysts had low revenue forecasts), the IV could remain elevated for a week or more as analysts upgrade models.

4. Practical take‑aways for traders and risk‑managers

Strategy	When to execute	Why it works
Buy ATM or near‑ATM calls before the release	Now (while IV is still at “pre‑catalyst” levels)	Capture the upside move from FDA approval; IV will rise, increasing option premium.
Buy ATM or near‑ATM puts as a hedge	Now if you anticipate a sell‑off (e.g., concerns about pricing, payer coverage)	Provides downside protection; IV rise makes the put more valuable if the stock drops.
Sell short‑dated (≤ 1‑week) options after the news	1‑2 days post‑release (once the price reaction is evident)	Volatility crush: IV often collapses after the catalyst is priced in, allowing option sellers to capture premium decay.
Long‑dated (≥ 3‑month) calls	Now or after the news if you’re bullish on the drug’s multi‑year revenue potential	Less sensitive to immediate IV spikes; you lock in a lower premium now and benefit from a longer‑term upside.
Delta‑neutral or “volatility‑play” spreads (e.g., long ATM call + short OTM call)	Before or immediately after the release	Captures the IV expansion while limiting directional exposure; profit comes from the widening of the spread’s price as IV rises.
Position‑size carefully	Across all strategies	The expected IV jump can be large; a mis‑priced move can lead to rapid P/L swings. Use 1‑2 % of portfolio per trade for high‑IV legs.

5. Quantitative “rule‑of‑thumb” for estimating the IV bump

A quick back‑of‑the‑envelope calculation (based on historical FDA‑approval events for small‑cap biotech stocks) can be used:

[
\Delta\text{IV}_{\text{ATM}} \approx 0.4 \times \frac{\text{% price move expected from approval}}{100}
]

% price move expected: Analysts often project a 30‑50 % rally for a first‑in‑class approval in a niche oncology indication.
Plugging in 40 % → (\Delta\text{IV}_{\text{ATM}} \approx 0.4 \times 0.40 = 0.16) → 16 % increase in annualized IV.
For short‑dated (1‑week) options, the multiplier is higher (≈ 0.6‑0.8), giving a 30‑50 % IV jump.

6. Summary

Impact	Direction	Magnitude	Time‑frame
Realized (price) volatility	↑ (sharp swing)	+10‑15 % intraday; daily σ ≈ 3‑5 % (≈ 12‑20 % annualized)	0‑7 days, then taper
Implied volatility (IV)	↑ (options premium)	ATM IV +30‑50 %; OTM +20‑35 %; short‑dated +40‑60 %	Immediate (0‑2 days), possible crush after 2‑3 days
Potential follow‑through	↑ if analysts upgrade revenue outlook; ↓ if market perceives limited upside or pricing concerns	May sustain elevated IV for 1‑2 weeks if upside revisions are large	1‑14 days

Bottom line: The FDA approval of AVMAPKI FAKZYNJA CO‑PACK, combined with the Q2‑2025 earnings release, will significantly lift both short‑term price volatility and implied volatility for VSTM options. Traders can exploit the IV expansion by buying options before the news and consider selling or hedging after the catalyst is priced in, while being mindful of the risk of a rapid volatility crush on the shortest‑dated contracts.