Monday, January 31, 2011

Kulicke & Soffa Industries (KLIC) - Depressed Vol into Earnings

KLIC is trading $9.71, up 3.2% with IV30™ up 2.0%. The LIVEVOL™ Pro Summary is below.


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Kulicke and Soffa Industries, Inc. (K&S) designs, manufactures and sells capital equipment and expendable tools used to assemble semiconductor devices, including integrated circuits (IC), high and low powered discrete devices, light-emitting diodes (LEDs), and power modules.

I found this stock using a real-time custom scan. This one hunts for low vols. What's interesting is that while it shows up on a low vol scan, earnings are out tomorrow BMO.

Custom Scan Details
Stock Price >= $7
IV30™ > 1
IV30™ - HV20™ <= -8 and >= -40
HV180™ - IV30™ >= 7
Average Option Volume >= 1,200
Days After Earnings >= 32
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 short-term implied vol (IV30™) that is depressed both to the recent stock movement (HV20™) 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), want to avoid bio-techs (and their crazy vol) and make sure I'm not purchasing depressed IV30™ relative to HV20™ simply because of a large earnings move.

The KLIC Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

We can see:
IV30™: 55.30
HV20™: 70.87
HV180™: 63.47

So, IV30™ is depressed relative to the short term and long term realized movement of the stock. The HV20™ number is elevated because of a gap up a few weeks ago (circled in the chart). The move was based on an upgrade from Oppenheimer from what I can tell.

We can glance at the Skew Tab below.

The front month is elevated to the back as it should be given earnings are out tomorrow. Finally, let's look to the Options Tab (below).

Possible Trades to Analyze
1. Bet that front month vol is too low:
a. Buy the Feb 9/10 strangle for $0.75.

2. Buy vol and bet to the upside:
a. Buy the Feb 10/11 call spread for $0.30.

3. Buy Mar vol:
Mar vol is 13 points less than Feb. If 63 vol feels like a purchase, then 50 vol might feel even better.
Buy the Mar 9/10 strangle for $1.05.

4. Play it totally backwards:
Sell the Feb 10 straddle @ $1.10.
Buy the Feb 9/11 strangle for $0.45.
Receive $0.65 (MaxGain) and risk $0.35 (MaxLoss).

This is trade analysis, not a recommendation.

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