Wednesday, January 12, 2011

MIPS Technologies (MIPS) - Depressed Vol into Earnings

MIPS is trading $17.27, down 0.3% with IV30™ unchanged. 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 out to 60 days.  MIPS becomes compelling because of earnings due out in Feb.

Custom Scan Details
Stock Price >= $7 <= $70
IV60™ >= 1
IV60™ - HV60™ <= -8 >= -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 MIPS Charts Tab (vol only) is included (below). IV60™ - yellow vs HV60™ - blue vs HV180™ - pink vs IV30™ - red).

We can see:
IV60™: 53.48
IV30™: 56.61
HV60™: 80.61
HV180™: 64.93

So, IV60™ is depressed relative to the intermediate-term and long-term realized movement of the stock as is the IV30™. The thing that makes this vol interesting is that earnings are due out in the Feb cycle. I've highlighted the last two earnings cycle - we can see the stock has a tendency to move.

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

Possible Trades to Analyze
1. Buy the depressed earnings vol and bet on a big move:
Buy the Feb 17.5 straddle for $2.60 or ~57 vol.

2. Do #1 but hedge a bit with a sale of the Feb 15/20 strangle @ $0.75. This creates a net debit of $1.85. One thing to note here, this limits the MaxGain:MaxLoss of 0.35:1.

3. Slightly different, sell the Jan 17.5 straddle @ $1.05 to fund the earnings straddle. One note here, this sells ~42 vol to fund a ~57 vol purchase.

This is trade analysis, not a recommendation.

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1 comment:

  1. Hi,
    Everyone is jumping around for 100000 trade in XLK, even it was on CNBC and whatstrading. Only I knew from Livevolpro that trade was canceled.