Thursday, January 20, 2011

F5 Networks (FFIV) - Stock Collapse and Skew Shift on Earnings

FFIV is trading $108.15, down 22.1% with IV30™ down 20.4%. The LIVEVOL® Pro Summary is below.


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FFIV shares slid after the Internet-traffic software company projected second-quarter revenue below Wall Street expectations. The weak forecast hit others in the network-equipment sector, with shares of RVBD and BCSI down as well.
Source: Market Watch

With the stock plummeting, I noticed an interesting Skew opportunity. The Skew Chart for FFIV is included below.

I'm lookin' at how wide the vol difference between the Feb and third month upsides opened up on the earnings news. BCSI and RVBD show vol diffs to the upside as well between Feb and March/Apr, with BCSI not as pronounced as FFIV. I've included RVBD and BCSI skew below for completeness.

Finally, the FFIV Options Tab is included below.

Possible Trades to Analyze
1. Trade FFIV skew:
Sell 1 FFIV Feb 130 call @ $0.80 (~49 vol)
Buy 1 FFIV Apr 130 call for $2.65 (~44 vol)
-- Other strikes are possibilities as well, the 130 line is just one play.
-- An extension/alternative is to sell the Jan 115 calls @ $0.45 for a 1.5 day trade. This is very risky.

2. Trade RVBD Skew:
This is a little trickier because RVBD earnings are due out in the Feb cycle, so be aware of the bet you're making if you do this.

This is trade analysis, not a recommendation.

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