Tuesday, December 4, 2012

Illumina (ILMN) - Vol Comps point to Elevated Risk in Next Three Weeks; Calendar Spread Opens as Well

ILMN is trading $51.93, down 0.4% with IV30™ up 3.9%. The LIVEVOL® Pro Summary is below.


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Illumina, Inc. (Illumina) is a developer and manufacturer of life science tools and integrated systems for the analysis of genetic variation and function.

I found this stock using a real-time custom scan I built in Fidelity. This one hunts for calendar spreads between the front two monthly expiries. I've included the results of the scan below.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 > 7
IV30™ GTE 30
Average Option Volume GTE 1,200

The goal with this scan is to identify back months that are cheaper than the front by at least 10 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume) and enough strikes to spread and thus a minimum stock price. I also require a minimum vol level in order to avoid any boring ETFs (or whatever).

The six-month ILMN 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 a nice rise over the last six months as the equity price has gone from $40.50 to now over $52 in half a year (~30%).

On the vol side we can see how the implied is now diverging from the two historical realized vol measures (both short and long-term). It's interesting to note how the IV30™ has climbed after a short lived drop following earnings. The vol comps are rather eye popping:

IV30™: 57.82%
HV20™: 27.09%
HV180™: 30.18%

In English, the option market reflects much higher risk in the next thirty days than the stock has realized in the recent and long-term past -- a compelling vol phenomenon IMHO.

It's the Skew Tab that will show us the calendar vol diff.

We can see how elevated Dec is to the Jan options -- in particular to the upside. That vol diff is double digits.

Finally, let's look to the Options Tab (below).

Across the top we can see that Dec is priced to 61.27% while Jan is priced to 53.52% -- so about an eight point vol diff. But, looking to the upside, for example the Dec/Jan 60 call spread, we can see that vol diff opens to over 11 vol points, and the Dec/Jan 65 call spread opens to ~17 vol points.

This is trade analysis, not a recommendation.

1 comment:

  1. Thank you for posting the great content…I was looking for something like this…I found it quiet interesting, hopefully you will keep posting such blogs….Keep sharing.

    John Methew
    Options Trading