Monday, October 31, 2011

Riverbed Technology (RVBD) - Vol Pop, Depressed Vol, Moving Stock

RVBD is trading $28.09, down 3.3% with IV30™ up 11.3%. The LIVEVOL® Pro Summary is below.



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Riverbed Technology, Inc. (Riverbed) has developed solutions to the fundamental problems associated with information technology (IT) performance across wide area networks (WANs).

I found this stock using a custom scan searching for names where IV30™ is up at least 10% on the day. What caught me eye though was the fact that the stock actually has depressed short-term vol to the historical measures. First, here are the scan details if you want to build it yourself in Livevol® Pro.

Custom Scan Details
Stock Price GTE 10
Average Option Volume GTE 1,200
Days After Earnings GTE 5 and LTE 60
IV30™ Percent Change GTE 10%
IV30™ GTE 10

The goal here is find stocks more than $10, with a greater than 10% rise in IV30™ (short-term implied) that is not due to an earnings date, with enough option liquidity to trade.



The RVBD 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).



On the stock side we can see the underlying price has soared of late from ~$18, to now over $28 (and nearly $40 before today). So, a ~60% gain in a month. We can also see in the fairly recent past how the stock gapped down after earnings. The 52 wk range for this stock is [$18.33, $44.70].

For a slightly zoomed look at vol, I've included just the vol portion (expanded), below.



We can see:

IV30™: 55.81
HV20: 62.51
HV180: 67.87

So, while the vol is ripping today, the IV30™ is still depressed relative to the HV180 (long-term realized) and the HV20 (short-term realized). For a stock that's been going straight up and has a 52 wk range as wide as RVBD does, low vol is worth noting. The 52 wk range in IV30™ is [42.11, 96.71], which is to point out that vol can get (and has been) lower and higher.

The Skew Tab snap (below) illustrates the vols by strike by month.



It's actually a frustratingly pretty skew, where there are no kinks and it holds a perfect shape. Strike by strike there don't seem to be any obvious trades to analyze. Finally, let's look to the Options Tab, for completeness.



I would just not that the Nov ATM straddle is worth ~$1.90 with the stock which has moved almost $1 today alone and has been anything but stagnant.

This is trade analysis, not a recommendation.

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Risk is Not Out of the Picture

I wrote this article for TheStreet.com and it was posted on Friday morning (last week). You can read it with community feedback here: TheStreet.com (OptionsProifts)

The market is up, the CBOE Volatility Index (VIX) is down. This is the best October for US equities ever. Europe is settled... Wait... Is it?

So the European leaders got together this weekend and finally settled on what at times seemed a contentious negotiation. The net result is a ripping market, so clearly, we’re out of the woods... Right?...

Here are some bullet points to the newly agreed plan:

1. Greek debt holders will accept fifty percent write downs (sort of). Here’s a caveat: “The euro zone will offer "credit enhancements" or sweeteners to the private sector totaling 30 billion euros. The aim is to complete negotiations on the package by the end of the year, so Greece has a full, second financial aid program in place before 2012.”

Source: Reuters; Euro deal leaves much to do on rescue fund, Greek debt, by Luke Baker and Julien Toyer

2. The Eurozone banking sector needs recapitalization to the tune of 106 billion euros.

3. The “bail-out” fund for emergencies has been increased from 440 billion euros to 1 trillion euros. This is the fund that has already been used to prop up Greece, Ireland and Portugal.

Ok, here’s where I think there are some problems, I dunno, call me crazy.

First just a fact: Several of the countries in the Eurozone are in recession or nearing recession. With that in play, here are some problems I see:

1. 106 billion euro recapitalization fund considering Italian and Spanish banks alone likely need more than that seems awfully low. Keep in mind, a huge chunk is earmarked for Greece. I dunno, 106 billion euros…not enough, no?

2. Other banks in France and Germany have started agreeing to recapitalize by deleveraging. Here’s a quote from a phenomenal Reuters summary:

“German sources told Reuters that four German lenders -- NordLB, LBBW, Commerzbank and Deutsche Bank -- would be asked to shore up their capital. Three leading French banks ruled out the need for government help in meeting tougher capital requirements.”

Source: Reuters; Euro deal leaves much to do on rescue fund, Greek debt, by Luke Baker and Julien Toyer

That sounds really complicated, so here’s the English version. The banks agreed they carry too much risk and they will reduce that risk by reducing debt load. They will reduce that debt load by lending less. Just to be clear, lending less means slowing an economy that is already or near in recession. Very scary.

3. The “bail-out” fund was increased to 1 trillion euros, but, where does that money come from? Yeah, there were no details, no sentence fragments, nothing that I have found that tells us where the magical 600 billion euros come from except for this: “Around 250 billion euros remaining in the fund will be leveraged 4-5 times, producing a headline figure of around 1.0 trillion euros, which will be deployed in a variety of ways.”

An FT article writes:

The €1,000bn that has been touted for the fund’s size is, as a result, a guesstimate based on the still-untested ability to multiply a still-unknown asset base by four to five times. “This is an approximate value,” acknowledged Angela Merkel, the German chancellor. “We don’t know yet how this works.”

Source: Financial Times; The devil in the details and the data, by Peter Spiegel in Brussels

So just to be clear, how are they going to find the 1 trillion euros to protect banks from being over leveraged? They’re going to lever up 4x-5x on a quarter trillion euros. WTH?

4. Not that #3 isn’t bad enough, but there weren’t any details about how the money from the “bail-out” fund would be used. What if Spain, Portugal, Italy, Ireland and Greece all need it? What if Germany and France need it?

5. Just to be clear about Greece, AFTER the writedown of its debt, the country will face a debt load that is 120% of GDP by 2020. Whoa! It’ll be 120% in eight years and working down from ~160% until then. Problem solved…Really? Even further, the details of the writedown aren’t really even close to being done. Here’s another snippet from the DT article:

“Not only is the reduction in Greece’s debt dependent on almost all current bondholders participating in the plan, but the actual bond-swap which will produce the savings has not even begun to be negotiated.”

I thought Greece was in dire straits? Ya know, garbage building on the streets because of strikes, etc. Does this sound like a fast acting plan?

There are doubters out there, big ones. Here are some snippets from that same Reuters article:

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Oil giant Royal Dutch Shell (RDS.A) said it planned to curb its investments in the European Union in future due to doubts about the bloc's chances of recovering from the crisis.

"Europe's macroeconomic position can only recover and the sovereign debt crisis can only be addressed through underlying economic growth," Simon Henry, chief financial officer, told reporters on a conference call on Thursday.

"We do not see the European Union creating the conditions for that, in fact quite the opposite," he said.

---

The FT article quotes a JPM analyst:

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“More than we had expected … has been left to be finalised and detailed over the next month,” Malcolm Barr of JPMorgan wrote. “There is plenty of room to doubt whether each of the key aspects of the package will deliver.”

---

All in all, the agreements reached seem to be, and forgive the crassness, bs. They couldn’t walk away with nothing, so they walked away with something really bad? Leveraging up to get 1 trillion euros which may not be enough and has no direction anyway? Slowing the recessionary economies more by deleveraging (but they just levered up?). 106 billion euros for recap when the other “non-headline” countries likely need that much alone and that’s not to speak of Greece. A restructure for Greece that leaves them on the edge again. Wanna bet they need help in say... six months?

The market is up, fine. Vol is down, fine. In my opinion, the risk is not gone -- no matter how much the Dow soars. Keep your head up, punches will continue to fly. Having said all of that, the market wants to go up, so, it might go up a lot…like DOW 13,000 a lot...

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 10-31-2011

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Friday, October 28, 2011

Pre-Market/Post Market: 10-28-2011

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Thursday, October 27, 2011

WMS Industries (WMS) - Opening Naked Call Buyers Ahead of Earnings

WMS is trading $21.05, up 3.7% with IV30™ up 6.8%. The LIVEVOL® Pro Summary is below.



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WMS Industries Inc. (WMS) serves the gaming industry by designing, manufacturing and distributing games, video and mechanical reel-spinning gaming machines and video lottery terminals (VLTs) to authorized customers in legal gaming venues worldwide.

This is an order flow note -- specifically untied OTM call buying in the front. The company has traded over 5,800 contracts on total daily average option volume of just 350. With the exception of 42 contracts, everything has been calls, yielding a 138:1 call:put ratio. The action has been in the Nov 22.5 calls where over 5,100 have traded. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the calls are mostly opening (compare OI to trade size). The color I got on at least the two largest trades (1,329x and 1,074x) was a customer buyer untied (no stock). When looking down the entire option chain for WMS, I don't see any OI larger than 2,027 with nothing other than the Jan 20 puts holding OI greater than 805, so this action is very large.



The Skew Tab snap (below) illustrates the vols by strike by month.



We can see the front month is elevated to the back. The next earnings report is due out on 11-7-2011 so the Nov expo cycle has that event embedded. The flow today has pushed vol up 8.7 points (15%) in Nov while Dec is up just 1.6 points (3%).

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



Note that on the last earnings release (8-4-2011) the stock dropped from $25.28 down to $18.22 or 28%, so it can move on earnings. The bets today are on a move up. Even with the vol pop today, the implied is still trading somewhat depressed to the short-term historical realized vol (69.14 vs. 60.83).

This is trade analysis, not a recommendation.

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Research in Motion (RIMM) - Earnings Vol in Back and Elevated Vol in Front

RIMM is trading $20.71, down small with IV30™ down 0.5%. The LIVEVOL® Pro Summary is below.



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Research In Motion Limited (RIM) is a designer, manufacturer and marketer of wireless solutions for the worldwide mobile communications market.

RIMM has had earnings in the last two Decembers (12-17-2009 and 12-16-2010) following earnings releases in September. This year RIMM had earnings on 9-15-2011, so it follows that it may have earnings this December as well. The vol in the Dec options (82.62) is elevated to both Nov (78.55) and Jan’12 (73.07), so, in English, it feels like earnings are due out again this Dec.

Let’s turn to the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



On the chart portion, we can see three gaps down in stock price, the last two driven by earnings reports. Over the last couple of years (or less), RIMM has dropped from a $75 stock to now potentially going into the teens. The reasoning has been pretty simple, they’re not selling well relative to their past or projections – Apple is dominating the market and Android (Google) phones are also taking market share.

On the vol side we can see that the IV30™ is now elevated to both the short-term and long-term historical measures. Specifically:

IV30™: 80.37
HV20: 73.10
HV180: 66.25

Let’s turn to the Skew Tab.



We can see that the Dec vol lies on top of the Nov vol – again, this looks like a reflection by the option market of an anticipated earnings report.

Finally, let’s turn to the Options Tab for completeness.



I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. But, I do make note of the 52 wk low for RIMM, which is $19.29 and the fact that the stock gaps down tend to be preceded by quiet(ish) stock movement. While owning the Dec options (earnings event), especially the downside seems reasonable (hey, the 4mm Apple new iPhones that sold must have had some effect on RIMM, no?), I also like selling that elevated IV30™. Having said all of that, being naked short options might be a touch risky as well.

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 10-27-2011

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Wednesday, October 26, 2011

Pre-Market/Post Market: 10-26-2011

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Tuesday, October 25, 2011

SLM - Dipping Stock, Rising Vol, Open Skew in Calendar to OTM Puts

SLM is trading $12.58, down 11.3% with IV30™ up 30.4%. The LIVEVOL® Pro Summary is below.



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SLM Corporation, known as Sallie Mae, is a holding company that operates through a number of subsidiaries. The Company’s primary business is to originate, service and collect loans made to students and/or their parents to finance the cost of their education.

This is an order flow note and a note on the vol. The company has traded over 23,000 contracts on total daily average option volume of just 5,619. Puts have traded on a 3.7:1 ratio to calls with the action in the Nov 12 and 13 puts. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the puts are trading against large OI so whether or not the trades are opening is ambiguous (compare OI to trade size). The Nov 12 puts look like purchases, but the Nov 13 puts actually look like sales, maybe. But the thing that really caught my attention is in the puts spread across months.



The Skew Tab snap (below) illustrates the vols by strike by month.



Check out that vol diff between the 9 and 10 strikes in Nov versus Dec. We're looking at 20-30 vol point diffs.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



I've highlighted the stock drop today along with the IV30™ spike. As of today, the implied is now trading over the two historical measures.

Possible Trades to Analyze
It may be worth analyzing the Nov/Dec 10 put spread. That's selling 95 vol and purchasing 74 vol -- or in English, paying ~$0.18 for that put spread. Doing diagonals (either way) using the 9 strike as well also may be worth examining. You know.. or not...

FULL DISCLOSURE:  I own that Nov/ Dec put spread.
This is trade analysis, not a recommendation.

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Netflix (NFLX) - Stock Collapses on Earnings, Vol Shifts Intra-day

Netflix is trading $77.22, down 35.0% with IV30™ down 4.0% as of ~11:15am EST. The LIVEVOL® Pro Summary is below.



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Netflix, Inc. (Netflix) is an Internet subscription service streaming television shows and movies. The news today is earnings – bad earnings. Here’s a quick snippet to summarize:

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Netflix jolted its shareholders again with a third-quarter financial report that portrayed a company in crisis.

The video subscription service's latest blooper reel, released Monday, included an even larger customer exodus than the company had foreseen after announcing an unpopular price increase in July. What's worse, the report contained a forecast calling for more defections during the next few months.

The backlash will deprive Netflix Inc. of some of the revenue that management had been counting on to finance the company's expansion plans while it pays higher fees for Internet video streaming rights. The result: Netflix expects to post losses next year when it starts selling its streaming service in Britain and Ireland. The company didn't offer further specifics besides saying it won't go into any other overseas markets until it's making money again.
Source: AP
---

Well that’s not very good news... I noticed NFLX early on because of the vol (and obviously the stock move). Let’s start with the one-minute tick chart from today.



The top portion is the stock price, the bottom portion is the Nov monthly expo vol. We can see the stock bounced off of early lows and the vol fell off early morning highs. In fact, the vol was up 10% after the earnings release (for good reason). Now, the vol is actually down on the day, albeit small.

Let’s turn to the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



I’ve highlighted the annual high, which, unbelievably, was over $300 a share. I’ve also highlighted the collapse today, pushing the stock into the 70’s. On the vol side we can see how the implied has stayed elevated off of earnings, at least for now. Keep in mind the HV is calculated close-to-close, so that blue line will spike massively in tomorrow’s chart.

Let’s now turn to the Skew Tab to examine line-by-line and month-to-month vols.



Note that the red curve is the Oct 28 weekly options. We can see how elevated the front is relative to the back, and again, this is for good reason. Due to the parabolic skew, the upside vol diff is actually gigantic.

Finally, let’s turn to the Options Tab and make a trade.



I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. I will say that calendar spreading the upside feels a touch icky because owning the upside vega given that the stock is going in reverse just doesn't ya know... seem like fun. Of course, if the stock rallies hard to the strike, then, it's awesome. But, given the behavior of the vol and the stock today, an interesting position could bet on vol coming in (going down), while the stock maintains a level above "something". That something could be the short strike in a reverse calendar (or whatever) selling vega but protecting.

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 10-25-2011

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This is trade analysis, not a recommendation.

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Monday, October 24, 2011

Targacept (TRGT) - Vol, Vega, Probabilities, and Bio-tech Events

TRGT is trading $17.28, up 6.7% with IV30™ down 5.6%. The LIVEVOL® Pro Summary is below.



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Targacept, Inc. is a biopharmaceutical company engaged in the design, discovery and development of neuronal nicotinic receptor (NNR) Therapeutics for the treatment of diseases and disorders of the nervous system. Yeah... a bio-tech... Sup?

With a relatively uninteresting market today in terms of vol moves, this company caught my attention b/c of the rocketing vol into a phase III trial / results / stuff 'n stuff. Here's some news from Briefing:

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Targacept's lead program, TC-5214, is being co-developed with AstraZeneca (AZN) and is in Phase 3 clinical trials as an adjunct treatment for major depressive disorder. Phase 3 data is expected in Q4... On 10/6, Ladenburg said they expect TC-5214 to be safe and to generate efficacy data comparable to approved adjunctive MDD drugs.

Click to read more

Provided by Briefing.com (www.briefing.com)
---

Let's turn to the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



We can see the stock is down over the last 6 mos, but really, it's the vol chart that's extraordinary. IV30™ is now over 200 and also very interesting, the front two months ATM vol are nearly identical. An event is due out, and the option market reflects the uncertainty both in the outcome and the timing. Very cool...

Let's turn to the Skew Tab, below.



We can see that the option markets reflect a vol event within the next two expirations but certainly before the Feb '12 cycle. That makes option trading in this one risky based on outcome and timing -- both of which are substantial risks.

Let's turn to the Options Tab for completeness.



How do you like those vols in Nov and Dec? The ATM (17.50 strike) is priced within 0.50 vol points of each other -- very unusual. In fact, so unusual that I'm not going to say anything else so no one blames me for... ya know... anything... 

One question though:  What do the equal vols mean about the implied probability of an event in Nov?  In Dec?  If the event is in Nov, isn't it in Dec too?  If the event is in Dec, isn't it not in Nov? Ok, that was a lot more than one question.

Possible Trades to Analyze
Please be careful... This is definitely rip your face off vega if you're long, and rip your face of gamma if you're short. So, try to keep your face on.

This is trade analysis, not a recommendation.

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