Tuesday, September 14, 2010

Radware (RDWR) - Stock Explodes Mid-day on Rumors; Someone Knew...

RDWR is trading $38.24, up 37.2% with IV30™ up 76.2%. The LIVEVOL™ Pro Summary is below.

At around 1:05pm EST, the stock ripped up on apparently no news. The Tick Chart is included (click to enlarge). Note how the front month vol exploded, and the back months were more muted.

The company has traded over 12,000 options on total daily average option volume of just 653. Calls are trading on a 5:1 ratio to puts. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that the Sep 35 calls have the bulk of the volume on 0 (zero) OI. These were all opening today.

Note the vols. Sep is up to 215 (up 160 points), Oct is up to 86 (up 37 points) while Dec is 56, up only 8.8 points.

I can't find any real news on this thing, but it's obviously a takeover rumor/news story. The market in general has found itself in a takeover heavy wave which is usually the beginning of a strong bull market. Of course, a few weeks does not a trend make.

Possible Trades to Analyze
I don't really like trading this kind of news.. ok, that's a lie... I don't like telling people to trade this kind of news. I will say this, a buy write (buy stock/sell call) in the Sep 30 line would look like this:

Buy 100 Shares RDWR for $38.24
Sell 1 Sep 30 calls @ $8.60
That's just $0.36 over parity.

Selling 1 RDWR Sep 30 put @ $0.45 is the same thing (except you don't own stock, which has value in a rights/voting/tender event), but $0.09 better. So owning stock (regardless of deltas) seems to have value. Ok, that's all I'm saying. We have some positions, but not that trade.

In terms of fishyness... Yes...

Below are the trades in the Sep 25 calls. Note the first few are before the spike. Some one was paying $3.40 and $3.70 on $0.45 and $0.30 wide markets 400x in a stock that trades just 400 calls a day. All that was done in 11 minutes.

Also interesting, looking at just trades that are 10 lots or larger, from 9:42am to 11:56am, there were zero trades. Then, all of a sudden, an hour before "the move," the call buying came in. Those trades are included (click to enlarge). This accounted for over 500 call purchases.

This is trade analysis, not a recommendation.

Legal Stuff:


  1. Shortly after the English-language sister website of Israeli business newspaper Globes reported that Radware was in discussion with HP and IBM regarding a takeover, the stock shot up:


  2. What are the chances of first, submitting a synthetic long at 30 for a price, that would then allow a reversal. Then short the stock.

    Currently I am just trying to price my synthetic long 30 strike at 5-10 cents below the current underlying bid, less 30 dollars. i.e if underlying is 38.6 then I try to execute my synthetic 30 strike for 8.5

    I guess the question is, if one were to attempt a reversal, what would one execute it so that they had the best chances of arbing it.

  3. That is super risky given the width of these markets and how fast the stock is moving. Also, keep in mind that the reversal in this case isn't an arb as long stock has value (you can see a special blog I posted on that to the right under "top blogs").

    Having said that, ATM reversals are usually the easiest as there is the most liquidity and the tightest markets.

  4. Got this via e-mail:
    Read your RDWR write-up on the blog. Hearing there was a full story out in Hebrew with a $45 rumor price and bidding war between HPQ/IBM – story was out for 30 minutes before it was translated and picked up by Associated Press.