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VanceInfo Technologies Inc. is an information technology (IT) service provider and an offshore software development company in China. The Company’s range of IT services includes research and development services, enterprise solutions, application development and maintenance (ADM), testing, as well as globalization and localization.
So this is another of the Chinese stocks with a cloud of doubt and a lot of vol. This one came up on the elevated vol real-time custom scan.
Custom Scan Details
Stock Price GTE $7 LTE $70
IV30™ - HV20™ GTE 10
HV180™ - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry != Bio-tech
Days After Earnings GTE 10 LTE 60
The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20™) 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), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching.
The VIT Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).
We can see:
IV30™: 98.35
HV20: 62.08
HV180: 47.41
So, IV30™ is elevated relative to the short term and long term realized movement of the stock, but for seemingly good reason. Not only is there a systematic risk associated with this stock (i.e. China's public company opaqueness in reporting) but also a firm specific risk -- this was ~$35 stock early May and is now a teenager.
Let's turn to the Skew Tab to examine the strike-by-strike and month-to-month vols.
There's a nice monotonic relationship in the term-structure from month to month as the front is more expensive than the back (in terms of vol). The downside in the Jul options (which are really 1.5 day options) is super bid as the catastrophic downside remains priced into the options.
Let's look to the Options Tab (below).
We can see the Jul 15 puts have fair value (mid-market) of $0.10 on 235 vol. The Jul 17.5 puts have $0.30 fair value on 140 vol.
Possible Trades to Analyze
1. Calendar spread
a. The 17.5/20 strangle calendar receives ~$0.45 for one day in Jul to pay for the earnings strangle in Aug. It sells ~125 vol to a purchase of ~95 vol. Of course, this close to expo, this isn't really a "vol" sale, so much as a single day gamma bet that the stock stays in a tight(ish) range.
b. Similarly, the one-sided version of these calendar spreads (17.5 puts spread and/or 20 call spread) may be worth examining.
2. Straight vol purchase
Perhaps the ~95 vol in the Aug earnings cycle is worth a peak. The company can move size off of an earnings release (or any other release). Do keep in mind the historical vol levels, though.
This is trade analysis, not a recommendation.
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