National Semiconductor (NSM) - Stock and Vol Pop on Call Order Flow

NSM is trading $15.60, up 3.7% with IV30™ up 9.7%. The LIVEVOL® Pro Summary is below.



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National Semiconductor Corporation (National) is a semiconductor company focused on analog and mixed-signal integrated circuits and sub-systems, particularly in the area of power management.

On 11-3-2010, I wrote this post on NSM:
National Semi (NSM) - Calls Bid and Skew Bends.
At that time, the stock was trading ~ 13.50.

The company has earnings due out 3-10-2011. Over 13,000 contracts traded on total daily average option volume of just 2,068. Calls have traded on a 43:1 ratio to puts. The action is in Mar and April 16 and 17 calls as well as the May 17 calls. The direction of order flow is not clear to me, but the rising vol and skew shape makes me feel like these are mostly purchases. The The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that all five of the strikes mentioned above are mostly opening (compare OI to trade size).



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



In Feb the 17 strike shows a skew bent upwards. Apr and May are flattish.

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).



We can see the IV30™ spiking of late. The last two earnings cycles for NSM have resulted in stock gaps down. On 9-10-2010, the stock dropped 6.4%, on 12-10-2010, the stock dropped 7.7%.

Possible Trades to Analyze
1. Trade the Mar skew:
Buy the Mar 16/17 call spread for $0.30. This sells the elevated 17 strike relative to the 16 strike. I'd rather pay $0.25 (duh) -- a 4:1 MaxGain:MaxLoss makes this trade much more interesting.

2. Trade the Mar/Apr upside skew:
Buy the Mar/Apr 17 call spread for $0.15. This scalps about 7 vol points, BUT, this trade also sells earnings vol. I don't love this trade.

3. Trade the Apr/May upside skew:
Buy the Apr/May call spread for $0.15. This trade scalps 4 vol points, but doesn't sell earnings vol and pays the same price for another month.

This is trade analysis, not a recommendation.

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