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Nuance Communications, Inc. is a provider of voice and language solutions for businesses and consumers around the world. The news pushing the stock and vol today is a rumor of a possible bid for a takeover from AAPL. Here's the news:
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Nuance Communications shares are trading sharply higher Monday morning on speculation that the speech recognition technology company could be an acquisition target for Apple.
Source: Nuance Shares Spike On Speculation Apple Could Bid
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Just to add a little fuel to the fire -- NUAN has earnings due out tomorrow AMC. Today, the company has traded over 8,400 contracts in the first two hours on total daily average option volume of just 1,923. Calls have traded on a 7:1 ratio to puts with the action in the May 22, Jun 23 and Jul 21 calls. The Stats Tab and Day's biggest trades snapshots are included (below).
The Options Tab (below) illustrates that the May and Jun calls are mostly opening if they're one-sided (compare OI to trade size). I didn't include it, but the Jul 21 calls have traded more than 1,200x on OI of 4,615. The Jun 23 calls look a buyer initiated bidding up, but I can't tell with the May options. Given the vol and stock pop, I'm guessing the May calls are also substantially purchases.
The Skew Tab snap (below) illustrates the vols by strike by month.
We can see the upside skew is bid in both of the front two months. The drop off in the Jun 25 calls just looks like a low bid on the NBBO. It looks like the 9 point vol diff between the May and Jun 23 strikes is the largest on the OTM calls (other than the 25 strike).
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 stock popped today as has the vol on the takeover rumor. It is interesting to note that the IV30™ hadn't really expanded into earnings until today (which is not related to earnings).
Possible Trades to Analyze
If you feel that the rumor is not as risky as the option market reflects (i.e. over done), and you feel that the small (ish) vol increase that was reflected as earnings approached was appropriate, this could be a place to sell elevated vol. Of course, the opposite is also possible.
Calendar spreads, particularly to the upside, may be worth examining as the vol difference has expanded on the news today. The May/Jun 22 call spread showed just a 2 point vol difference on Friday -- today the 23 call spread difference has opened to ~9 vol points.
This is trade analysis, not a recommendation.
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