Finisar (FNSR) - Vol Purchase and Strategic Sales

FNSR is trading $19.06, up 1.4% with IV30™ up 2.5%. The LIVEVOL™ Pro Summary is below.



I found this stock using a real-time custom scan. This one hunts for low vols outside of the front month.

Custom Scan Details
Stock Price >= $7 <= $70
IV60™ >= 1
IV60™ - HV60™ <= -8 >=- 40
HV180™ - IV60™ >= 8
Average Option Volume >= 1,200
Industry != Bio-tech

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol Pro™.



The goal with this scan is to identify mid-term implied vol (IV60™) that is depressed both to the mid-term stock movement (HV60™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume) and want to avoid bio-techs (and their crazy vol).

The FNSR Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV60™ - yellow vs HV60™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



We can see:
IV60™:  ~47
HV60™:  60
HV180™:  57

So, IV60™ is depressed relative to the midterm and long term realized movement of the stock. We can also see a steady stock price increase of late which could point to lower vol - just make note. Finally, let's look to the Options Tab (click to enlarge).



We can see that the Nov 19 straddle is priced at about 45.5 vol or a $2.60 purchase. The Oct 20 straddle is priced at ~47.5 vol. Earnings shouldn't play a role in this trade as they are projected out in December.

Possible Trades to Analyze
1. Buy the Nov 19 straddle for $2.60.  At Nov expo. this trade requires FNSR to be outside of ($16.40, $21.60).  FNSR 52 wk. stock price range is [$7.05, $19.51].  If vol increases substantially this trade will win as well even if the stock doesn't move.  This trade loses to time decay.

2) A touch less risky is to do #1 above and sell something around it.  A Nov 16/22 strangle @ $0.60 brings the net debit to $2.00.  Note however this does substantially limit the upside.  Max gain would become just $1 in either direction.

3) Trade #1 with a sale of the Oct 19 straddle @ $1.40 nets a total debit of $1.20.  This turns the tables a bit, as it wins to time decay and hopes for little stock movement during the Oct options cycle.  Hypothetically it leaves a nice cheap long straddle in Nov if the stock sticks where it is now.  If that Oct sale works out, the next move could be to sell the strangle in trade #2 AFTER Oct expo. Something like this would be my most likely approach, but then again, I'm allergic to buying options.

4) A slightly more advanced and risky trade is to do #2, but sell 2 calls and 2 puts.  That creates a net debit $1.40 (selling $0.60 twice).  The strategy is naked short options to the upside (beware of a takeover) and the downside (beware of stock collapse).

This is trade analysis, not a recommendation.
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