Friday, January 15, 2010

TiVo (TIVO) - Time Spread and Volatility Event

TIVO is trading 9.78. The LIVEVOL™ Pro Summary is below.

I found TIVO from the Scanner Tab - the Time Spreads folder and the Expiry2 IV > Expiry3 IV scan. You can see the snapshot below (click the image to enlarge).

Note that the IV30™ (the volatility of the hypothetical 30 day option) is considerably higher than the IV60™ and IV90™ (from summary snap above). The Options Tab snapshot below (click image to enlarge) demonstrates the 22 point spread between months (Feb > May). Also note that TIVO has earnings 3/2 AMC which is in the May cycle and not in the Feb.

You can also see the mid-market value of the ATM straddles.
Feb: 1.20 + 1.60 = 2.80
May: 1.85 + 2.05 = 3.90

Or, in other words, the straddle for March, April and May = 3.90 - 2.80 = 1.10. So a three month straddle is worth 1.10 and a one month straddle is 2.80. And you get the earnings vol in the last three months. This must be an easy spread. Sell Feb buy May right! Unfortunately, not...

As the spread indicates, a very large vol incident is coming - and the expectation is clearly that it occurs in the Feb cycle.

I leave the research to the reader, but as a guide, here's a snippet from news service:

TiVo sees "near term" decision in patent dispute with EchoStar, Dow Jones says
Tom Rogers, CEO of TiVo (TIVO), says he expects a "near term" decision in its patent dispute with EchoStar Communications (SATS) and its sister company Dish Network (DISH), reports Dow Jones Newswires.

A look at the vol chart also clearly demonstrates the impending vol incident. The IV30™ (red line) is substantially higher than the HV30™ (blue line). The Charts Tab snapshot is included below (click the image to enlarge it).

This isn't trade advice just analysis. Read legal below.

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