Wednesday, February 29, 2012

Micron Technology (MU) - Bullish Bet Not Earnings Related... Or is it?

MU is trading $8.75, down 1.5% with IV30™ up 2.8%. The LIVEVOL® Pro Summary is below.



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Micron Technology, Inc. is a manufacturer and marketer of semiconductor devices, principally dynamic random access memory (DRAM), Nandi Flash memory (NAND Flash and NOR Flash memory, as well as other innovative memory technologies, packaging solutions and semiconductor systems for use in leading-edge computing, consumer, networking, embedded and mobile products.

This is an order flow note -- namely bullish order flow in size. The company has traded over 163,000 contracts on total daily average option volume of just 27,854. The largest trade was:
"MU - bot 50k apr 11 calls paid .14 - bot 50k mar 10 calls paid .09 - sold 13500 apr 9 puts @ .81 - sold 2.4 million shares @ 8.75 ... crossed philly"

In English, someone bought 50,000 Apr 11 / Mar 10 call stupids for $0.23 and sold 13,500 Apr 9 puts @ $0.81 to fund it. The required hedge to get the trade off was just 2.4 million shares. The options "only" cost $56,500 in a debit. The delta of the options trade was:

50000*100*.1544 + 50000*100*.1546 + 13500*100*.5309 = 2.3 million. So with stock, the trade is essentially delta neutch. But, in reality, the calls represent the right to purchase 10 million shares against 2.4 million short.

The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the calls and puts are mostly opening (compare OI to trade size).



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



The skew looks normal. Though it's unannounced (as far as I can tell), the next earnings release for MU should be in late Mar (but after Mar expiry). In other words, this bet is not a trade on the announced earnings.    Or is it?... Mor on that soon... Tricky...

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



The stock price has that interesting parabola shape. Lest we forget the tragic passing of the CEO Steve Appleton on 2-3-2012. This will be an interesting one to watch ahead of earnings. Perhaps a pre-announcement is due given the abrupt change of CEO (and Chairman) in which case, this oddly is in fact an earnings bet.

This is trade analysis, not a recommendation.

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Lions Gate Entertainment (LGF) - Elevated Vol; Calendar Vol Diff and News

LGF is trading $13.46, up small with IV30™ down 4.1% as of ~11am EST. The LIVEVOL® Pro Summary is below.



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Lions Gate Entertainment Corp. is a global entertainment company with a diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, family entertainment, digital distribution and new channel platforms.

I found LGF because of a vol diff that has opened up between the second and third expiries. Let’s start with the Charts Tab (six months). 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 an awesome run up in the underlying price.  LGF was a ~$6.50 in Sep of 2011 and it’s now more than double that. On the vol side, we can see how elevated the implied had gotten, reaching as high as 76.78% into earnings. Here’s a quick snippet covering that earnings release:

---
Lions Gate Entertainment Corp. says it reduced its loss in the quarter as it cut expenses. Revenue fell because it didn't have any movies in wide release in theaters. The movie studio acquired "Twilight" maker Summit Entertainment last month and has the first "Hunger Games" movie out in theaters next month.

Source: AP via Yahoo! Finance -- What earnings reports reveal about entertainment
---

While vol has fallen since then (as expected), the implied is still elevated to both of the historical realized measures I like to use. Specifically:

IV30™: 57.68%
HV20™: 49.76%
HV180™: 38.38%

If you read the news surrounding LGF, things are definitely moving. Let’s turn to the Skew Tab to examine the month-to-month (and line-by-line) vols.



We can see Apr is substantially elevated to Jun. Interestingly, LGF releases earnings on 2-9-2012 AMC, so the next earnings report should be in May. In English, those Jun options have an embedded earnings report that Apr does not while the vol in Jun is depressed to Apr.

Finally, let’s turn to the Options Tab.



I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. We can see Apr is priced to 59.64% vol while Jun is priced to 52.10%. When I peruse the news surrounding LGF, I see upgrades and downgrades – bulls and bears. Lots of “stuff” going on from acquiring Summit to attempting a sale of the TV Guide Channel. I think the elevated vol makes sense, especially given the recent stock climb.

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 2-29-12

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Tuesday, February 28, 2012

Kroger (KR) - Large Bearish Bets Rolls in Ahead of Earnings

KR is trading $23.82, down small with IV30™ up 2.2%. The LIVEVOL® Pro Summary is below.



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The Kroger Co. is a retailer in the United States. The Company also manufactures and processes some of the food for sale in its supermarkets.

This is an order flow note with earnings due out in two days BMO. The company has traded almost 71,000 contracts on total daily average option volume of just 1,565. The largest trade looks like a purchase of a an Apr 23 / Mar 22 put spread funded by a sale of Mar 25 calls. Each leg was done 19,750x for 59,250 contracts. I believe the trade was done with 840,000 shares (purchases). The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that all three legs are mostly opening (compare OI to trade size). When looking down the entire option chain for KR, I don't see any OI close to those sizes, so all sides of this trade are very large. One caveat here, 840,000 to 59,250 contracts is just 14 delta The put spread with the short puts is actually more like 45 delta. So it's either not a full hedge (thus a substantially bearish bet), or I'm totally misreading this.



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



We can see the elevated front month vol, which is normal given that earnings are due out very soon. All three of the front expiries show a normal skew skew shape -- not a whole lot "special" here.

Finally, the Charts Tab (six 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 has been pretty steady (note the values on the vertical axis). The HV20™ is 18.21% and the HV60™ is 17.43%. The implied has been rising from 17.70% on 1-23-2012 to now over 26%.

It will be interesting to see how earnings play out -- that's a huge bet given he relative stability of the stock price of late (HV measures).  I do note that the puts are owned in April -- not March.

This is trade analysis, not a recommendation.

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Fusion-io (FIO) - Depressed Vol Nears Annual Low

FIO is trading $27.72, down small with IV30™ down 1.4%. The LIVEVOL® Pro Summary is below.



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I found this stock using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price GTE $7
IV30™ - HV20™ LTE -8 GTE -40
HV180™ - IV30™ GTE 7
Average Option Volume GTE 1,200
Industry != Bio-tech
Days After Earnings GTE 32

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 short-term implied vol (IV30™) that is depressed 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 purchasing depressed IV30™ relative to HV20™ simply because of a large earnings move.

The FIO 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 that this was a $41 stock in the not too distant past. There have been gaps up and down since Oct of last year, but recently the historical realized vol has found a bit of a quiet period. On the vol side we can see how depressed the implied has become relative to it’s own history, the short-term historical realized and the long-term historical realized vols Specifically:

We can see:
IV30™: 64.75%
HV20™: 80.99%
HV180™: 93.13%

The 52 wk range in IV30™ is [63.32%, 111.40%]. The level today puts it in the 2nd percentile (annual).

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



We can see a monotonic increase in vol from the back to the front. Both Mar and Apr have rising upside skew, which is the opposite of “normal” skew. The parabolic shape in Mar does create a rather large vol diff between the OTM calls and puts in that expiry relative to Apr and Jun.

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



I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. The monthly vols (across the top) are priced to 68%, 63% and 61%, respectively for Mar, Apr and Jun.

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 2-28-12

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Monday, February 27, 2012

MedcoHealth Solutions (MHS) - Takeover Ruling Approaches; Report Makes Risk... Less?

MHS is trading $66.65, up 3.9% with IV30™ down 14.8%. The LIVEVOL® Pro Summary is below.



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Medco Health Solutions, Inc. (Medco) is a healthcare company. Medco provides clinically-driven pharmacy services designed for private and public employers, health plans, labor unions and government agencies of all sizes, and for individuals served by Medicare Part D Prescription Drug Plans.

This is a takeover note with an interesting vol event approaching and equity market pricing. First, the news:

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Announced on 07/21/2011

Medco Health Solutions Inc. (MHS) and Express Scripts Inc. (ESRX) announced a cash and stock merger. Each shareholder of Medco Health Solutions Inc. (MHS) will receive $71.36 per share in cash and stock.

Source: Livevol® Pro
---

Note the takeover price and the proce today. That $66 price is a new high for MHS. The news that has closed that spread is included below:

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Expectations for regulatory approval of Express Scripts’ planned $29 billion acquisition of fellow pharmacy-benefits manager Medco Health Solutions haven’t exactly been high, but appear to be picking up recently.


Today, Medco shares hit an all-time high on a late-Friday report from anti-trust research firm MLex that the deal would win approval.

Gabelli & Co.’s Jeff Jonas told Dow Jones today that Medco’s shares should be even higher given the report.

[...]

Express Scripts declined to comment on the report.

Source: Medco Hits New High As Express Scripts Deal Gains Confidence, written by David Benoit and Corrie Driebusch
---

Let's start with the Skew Tab.



Two phenomena that are of particular interest:
1. The front is elevated to the back months -- there is a news event coming out (a ruling) that will determine if this takeover / merger actually happens. This was a $55 stock the day before the announcement, so the potential fallout is not trivial.

2. The upside skew bends down -- the option market reflects substantially less upside potential relative to downside risk. In English, if the deal doesn't go through, the option market does not reflect a high likelihood of another bid (higher bid) from a different source.

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



Check out the vol portion. As Mar expo fades away and the day of the news event approaches, it's mathematically tautological that the vol will rise. That's what we saw up until today. The report (new news) though has apparently made the market "understand" that the likelihood of "bad" news has gone down. Hmm...

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



Looking across the top, we can see that the monthly vols are 63.98%, 52.48% and 39.73% for Mar, Apr and Jun, respectively. Digging a bit deeper, we can see that the front month vol has come down 9.7 vol points, while Apr is down 7.2 vol points. The current 11.5 vol point spread was two points higher as of Friday's close. That's more evidence that the risk inherent in the upcoming news has lessened rather suddenly.

This is trade analysis, not a recommendation.

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Dendreon (DNDN) - Stock and Vol Drop on Earnings; But Upside is Now Bid

DNDN is trading $12.28, down 17.3% with IV30™ down 18.3%. The LIVEVOL® Pro Summary is below.



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Dendreon Corporation (Dendreon) is a biotechnology company focused on the discovery, development and commercialization of therapeutics that may improve cancer treatment options for patients.

The news is simple -- earnings. The analysis, is not simple. Let's start with the news -- a bunch of snippets, all from theflyonthewall.com.

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10:00 EDT Dendreon falls 19.5%
09:59 EDT Dendreon breaks below its 50-day MA, support now at $11.06
09:58 EDT Gappers report
09:32 EDT Dendreon says targeting gross margin of 50% at $500M of revenue
09:20 EDT Pre-market top 5 losers
09:16 EDT Dendreon says will incur a substantial charge in Q1
09:09 EDT Dendreon says sees moderate growth in Q1 in the low single digits
09:08 EDT Dendreon says European PROVENGE application has been validated
08:35 EDT Dendreon reports Q4 EPS 26c, consensus (23c)
---

DNDN is a fascinating company as it has an approved drug to treat Prostate Cancer. I've actually written about this firm several times, most recently on 1-5-2012: Dendreon (DNDN) - Pre-announcement Sends Bio-tech Soaring; Vol Pops, Upside Skew is Bid.

I posted a quick summary of the rather involved history for this company in that prior post, and have included it again, below:

---
Starting simple – this is a bio-tech with its major product a prostate cancer drug called PROVENGE®. Obviously the company had massive ups and downs during the FDA review process and ultimate FDA approval. The potential market is enormous for this drug, as, for those of you that don’t know, essentially every male that survives long enough will almost certainly develop prostate cancer. Yeah, all of us…A market that large pushed the stock to over $50, with some claims so extraordinary about the market size in the future that it was… well, it was unbelievable.

The fight wasn’t over after FDA approval though because the drug is extraordinarily expensive – upwards of $100,000 / year. That’s a lot – and well out of reach for the majority of Americans (not to speak of other nationals). Another big news day came when the company won Medicare payment acceptance – in English, it’s on health insurers to pay for this thing which means the market (or potential market) opened up significantly.

Then… not so good news on sales figures – the lofty forecasts were missed, at times dramatically. Doctor acceptance was poor or slow, the stock was in the single digits after being over $50. Then, today happened.

As promised by the CEO, while the initial sales figures were poor, ultimately the drug works, and there really aren’t alternatives. So, it may have been slow to adopt, but, it’s happenin’ now. Here are some details from an article written by Adam Feuerstein of TheStreet.com.

---
Provenge gross sales for the December quarter totaled $82 million or 25% growth over third quarter sales, Dendreon said. On a net basis, analysts were expecting Provenge sales of about $70 million in the fourth quarter. Despite the apples-to-oranges comparisons, Provenge sales appear to have outperformed expectations.

[…]

"We had a strong fourth quarter that exceeded our expectations," said Dendreon CEO Mitch Gold in a statement. "As we look to 2012, we expect modest quarter-over-quarter growth while we focus on bringing additional clinics on board and converting them into steady prescribers."

Deustsche Bank analyst Robyn Karnauskas spoke to Dendreon management this morning. "They want to caution investors to continue to expect MODEST growth early next year, while still expecting 2Q/3Q uptick," she writes in an email note.
---

The stock was trading $10.77 as of that post and today it's down to $12.28. It's definitely gotten to the point where it's fair to ask, "when will this company be consistently profitable?"

DNDN did show a nice NI number for the fourth quarter, but then there's a Q1 charge coming per the news today. Let's look at the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



The stock price moves are pretty well documented by digesting the news repeated above. Let's focus on the vol. We can see that with today's vol drop of nearly 20%, the IV30™ is now sitting squarely in the 50th percentile for the year. For a clearer picture of vol, I've included the annual chart for IV30™, alone.



It's as though there are two companies charted on this graph. The one before the insanity of Summer 2011, and the one after. If isolating the analysis to the last six months, the implied is in fact trading near a low. Now look at the stock price fluctuation of late (back in the first chart). Does it feel like the vol should nearing a six-month low? Hmmm....

Let's turn to the Skew Tab.



I've included the weekly options in the skew chart. It's interesting to note that while the stock is down hard today, the front expiries do show an upward sloping skew. In English, the option market reflect greater upside potential than downside risk in the near-term.

Looking back to the skew on 2-10-2012 (below), we can see a different shape to the upside.



The options reflected a flattish skew in the Mar monthly options -- certainly not as bid to the upside as today. So, the drop today has pushed vol down (since earnings are now over), but has elevated the upside vol (potential). Pretty cool...

Finally, let's turn to the Options Tab.



The options expiring this week are priced to 113% vol, while Mar and Apr are priced 84.58% and 77.47%, respectively. Note that the Mar(W) 14 calls are priced to almost exactly half as much as the mar monthly 14 calls. In vol terms, it's ~146% to ~89%.

This is trade analysis, not a recommendation.

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Pre-Market/Post Market: 2-27-12

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This is trade analysis, not a recommendation.

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Friday, February 24, 2012

Pre-Market/Post Market: 2-24-12

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Thursday, February 23, 2012

Pre-Market/Post Market: 2-23-12

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