Wednesday, November 10, 2010

Spreadtrum (SPRD) - Depressed Vol into Earnings

SPRD is trading $15.32, down 1.9% with IV30™ up 1.7%. The LIVEVOL™ Pro Summary is below.


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I found this stock using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price >=$7 and <= $70
IV60™ >= 1
IV60™ - HV60™ <= -8 and >= -40
HV180™ - IV60™ >= 8
Average Option Volume >= 1,200
Industry != Bio-tech

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol Pro™.

The goal with this scan is to identify intermediate-term implied vol (IV60™) that is depressed both to the intermediate stock movement (HV60™) 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) and want to avoid bio-techs (and their crazy vol).

The SPRD Charts Tab is included (below). The top portion is the stock price, the bottom is the vol chart: IV60™ - yellow vs HV60™ - blue vs HV180™ - pink.

We can see:
IV60™: ~53.76
HV60™: 70.66
HV180™: 63.08

So, IV60™ is depressed relative to the intermediate term and long term realized movement of the stock.

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

A few interesting things:
1. Earnings are due out this expo on 11-17-2010, Wednesday, with expo on Friday.

2. The IV60™ is crazy low even if earnings weren't coming up, weird, no?

Unfortunately there isn't a lot of earnings vol history for this one as they just started trading earnings.

Possible Trades to Analyze
1. Buy the Dec 15 straddle for $2.25. It pains me to buy vol naked, and then to get long earnings vega adds yet another sting, but staying agnostic, this vol does appear cheap.

2. Do #1, but sell a strangle - Nov or Dec. Or, get crazy, sell both the Nov and Dec 12.5/17.5 strangles. That does leave naked risk to both sides.

3. A trade I'm not crazy about but could be reasonable is to purchase Dec and sell Nov 15 straddles. The Nov straddle is fast becoming a pure gamma play, so you know... be mindful.

Those of you that are repeat readers here know how hard it is for me to purchase premium naked, so take my commentary with a grain of salt on this one...

This is trade analysis, not a recommendation.

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