Tuesday, January 25, 2011

Eastman Kodak (EK) - Vol Rips, Stock Drops on Patent Rulings

EK is trading $4.50, down 13.8% with IV30™ up 10.4%. The LIVEVOL® Pro Summary is below.


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The news for EK is included below:
Eastman Kodak Co. was handed a setback by a U.S. trade agency in the camera company’s effort to force Apple Inc. and Research In Motion Ltd. to pay patent royalties on a common image-preview feature used in phones.

Kodak fell as much as 8.6 percent in late trading yesterday after U.S. International Trade Commission Judge Paul Luckern said Apple’s iPhone and RIM’s BlackBerry device don’t violate Kodak’s patent. The administrative law judge’s findings are subject to review by the six-member commission, which has the power to block imports of products that infringe U.S. patents.
Source: Bloomberg

Yikes. I wrote about EK on 12-9-2010. You can read that article by clicking on the title below.
Eastman Kodak (EK) - Vol Rips, Calls Active on... Something?

Today, the company showed up on the IV30 One Day Increase scan. I've included the scan results below.

EK has earnings coming up tomorrow (ish), so the vol is elevated on the news above and the earnings report. Let's look to the Skew Tab.

So we can see a monster vol difference between the Feb and Mar 5 calls. It looks like about a 20 point vol divergence. Let's turn to the Options Tab.

Possible Trades to Analyze
1. Spread the Feb/Mar 5 calls
Sell the Feb 5 call @ $0.24 (~90 vol)
Buy the Mar 5 call for $0.31 (~71 vol)
Pay $0.07 to own March. I don't usually like selling earnings vol just for the sake of it, but risking $0.07 seems ok. Best case scenario, the stock goes to around 5 by Feb expo and this trade looks nice.

2. Bet on a rebound:
Buy the Feb 5/6 call spread for $0.18. This actually sells higher vol than it purchases in a call spread, which is unusual. The MaxGain:MaxLoss is 4.55:1.

3. Do #1, but with the 4 level puts instead:
Sell the Feb 4 puts @ $0.17 (~88 vol).
Buy the Mar 4 puts for $0.25 (~72 vol).
Pay $0.08 and bet that EK goes to around $4 on Feb expo.

NB: Both trades #1 and #3 lose to a big move on earnings (or after).

This is trade analysis, not a recommendation.

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