VirnetX Holding (VHC) - Elevated Implied, Dipping Historical and Earnings Vol

VHC is trading $21.41, down 3.0% with IV30™ down 5.2%. The LIVEVOL™ Pro Summary is below.



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VirnetX Holding Corporation (VirnetX) is a development-stage company. The Company is engaged in developing and commercializing software and technology solutions for securing real-time communications over the Internet.

I found this stock using the real-time custom scan that searches for high vols.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20 LTE 10
HV180 - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated 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 selling elevated IV30™ simply because earnings are approaching.

The VHC 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 vs. HV10 - white).






We can see the stock drop in Summer and the “slow and steady” slight recovery of late. I call it “slow and steady” because we can see how the realized vol has decreased substantially. The HV10 hit as high as 256.17 and HV20 hit as high as 193.06. Those two measures are now down to 60.6 and 82.09, respectively – that’s the result of the equity price realized volatility dropping. During a similar period, IV30™ has gone from 151.31 down to 106.32.

In English, the implied has dipped less than the realized creating a vol difference and thus triggering the elevated vol signal from the custom scan. Specifcally:

IV30™: 106.32
HV20: 82.09
HV180: 95.24
HV10: 60.36

Let’s turn to the Skew Tab to examine line-by-line and month-to-month vol comps.



We can see the skew has a “normal” shape with the downside puts bid relative to the upside (and ATM). We can also see how the back month is elevated to Oct – that’s an earnings phenomenon as they are due out in the Nov options cycle.

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



The downside puts in Oct look like tasty sales given that they’re trading as high as 127 vol with the stock finding a “quiet period” of late. The 52 wk range in VHC is [$10.21, $41.77], although that low was hit more than 6 months ago. The recent low is $15.51 hit on 8-8-2011.

I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. But, given that this stock was ~$10 within the last year, selling the downside Oct puts naked might feel a little risky given the overall market sentiment. A calendar runs into trouble since the Nov options aren't out yet and earnings are due out in that cycle.

This is trade analysis, not a recommendation.

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