Friday, November 12, 2010

Fairchild Semi (FCS) - Put Buyer Breaks Vol Term-Structure

FCS is trading $12.38, up 2.3% with IV30™ up 9.3%. The LIVEVOL™ Pro Summary is below.


For a limited time we are offering a FREE real-time trial to Livevol Pro™ for non-professional traders. You can get your trial by following the directions here: Click for Free Trial Offer

The company has traded over 5,500 options on total daily average option volume of just 508. Only 12 of the contracts have been calls, yielding a 460:1 put:call ratio. It's the Dec 11 and 12 puts that are trading. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the puts are mostly opening (compare OI to trade size). When looking down the entire option chain for FCS, I don't see any OI larger than 2,141, so the Dec 11 put volume is very large.

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

I like this chart - we can see the Dec downside has spiked past the Feb'11 downside on the 11 strike. The vol adjustment makes sense, but might yield a trading opportunity. It's common for Dec vol to be below a back month (seasonal vol phenomenon), but this change in skew breaks the term-structure pattern.

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 rise then small dip. What I see is the IV30™ popping past both the short-term (HV20™) realized and the long-term realized (HV180™). Note that this is only a $12 stock, so it can only go down $12... if you know what I mean...

Right now the vols are:
IV30™: 48
HV20™: 32
HV180™: 45

It feels like 50 vol or higher is around where a vol sale starts to become enticing.

Possible Trades to Analyze
1. Nice and simple: Buy the Feb/Dec 11 put spread and pay $0.40 if possible.

2. For you risk lovers, sell the Dec 11 puts naked @ $0.30 if possible (there is a lot of liquidity at that price). That's 56 vol. Maybe try to sneak a $0.10 bid in the Dec puts to cover - receive $0.20 total. Note though, the MaxGain:MaxLoss ratio is 1:5.

This is trade analysis, not a recommendation.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

Legal Stuff:

No comments:

Post a Comment