CML is trading $18.02. The LIVEVOL™ Pro Summary is below.
I found this company using a custom real-time scan I developed on Livevol Pro. The details are included below:
Time Spread Scan Details
Stock Price >= $5
Avg. Option Volume >= 1500
Industry != Bio-Tech
Sigma1 - Sigma2 >= 7
Sigma1 >= 1
Sigma2 >= 1
Days After Earnings <= 10 >= 70
Lets take a look at the Skew Tab first (click to enlarge). In this case, I'm interested less in the shape of the skew than a simple graphical representation of the vol diffs ATM.
I've highlighted the month to month vol difference. The company had earnings 7-28-2010 AMC, so a reasonable projection is that the next earnings release will be after Oct expo which is 10-15-2010. That means a time spread not only buys low vol against selling high vol, but it also gets the benefit of buying a vol event (earnings).
Let's finally look to the Options Tab for prices (click to enlarge).
It looks like with some reasonable liquidity an Oct 17.5 straddle could be sold @ $3.05 while the Nov 17.5 straddle could be purchased for $4.60, or a total of a $1.55 debit. Keep in mind, time spreading by purchasing the back is long vega. That means a takeover will likely be a large loser. The ideal situation here is that CML pins on the strike at Oct expo, yielding a cheap long straddle in Nov with an earnings event. The worst case scenario is a large move away from the strike pre Oct expo. A rise in vol without a stock move is also a winner.
A few other things to note.
So this stock moves pretty big and both the 86 vol sale (Oct) and 79 vol purchase (Nov) are substantially less than the recent short term realized vol. A Nov ATM straddle purchase in and of itself looks somewhat reasonable.
This is trade analysis, not a recommendation.