Friday, February 18, 2011

MetroPCS (PCS) - Earnings Bet

PCS is trading $13.36, up 1.8% with IV30™ up 13.7%. The LIVEVOL® Pro Summary is below.


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MetroPCS Communications, Inc. (MetroPCS) is a wireless telecommunications provider. The company has earnings due out on 2-24-2011. Although there has been some order flow similar to the WTW interest I noted on 2-14-2011 and then again yesterday, Weight Watchers (WTW) - Insider Trading?, I wouldn't start piling on the speculative bet. WTW was an anomaly, it's likely not replicable. Ok, you've been warned...

PCS has traded over 8,000 contracts on total daily average option volume of just 897. Calls have traded on a 34:1 ratio to puts. The Mar 14 calls have traded over 6,600x. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls in Mar have a large OI.

I got color on the 1200 lot that traded in the Mar calls today and it seems that at least that trade was a customer buying. Using the Level II pop-out from LVP, we can see when the Mar 14 calls opened prior to today. That image is included below.

We can see the OI jumped on 1-27-2011. I've included the Time & Sales (below) from that day for the Mar 14 calls -- looking for all trades >= 100 lot.

So, the opening orders were purchases and I think the orders today are also long (I'm not sure, though). If this is the case, we have substantial opening long calls ahead of earnings in PCS. The final word will be Monday when we can see the new OI.

The Skew Tab snap (below) illustrates the vols by strike by month.

The upside calls have gone super bid (bending up) so the circumstantial evidence that at least some are purchases is piling up. Note that the 15 calls have higher vol than the 14 calls -- and this makes an interesting trade to analyze.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

We can see the vol has exploded of late and that trend is continuing today.

Possible Trades to Analyze
1. Copy order flow and scalp skew in a call spread:
Buy the Mar 14/15 call spread for $0.30. This yields greater than a 3:1 MaxGain:MaxLoss and sells higher vol than it purchases in a call spread.. tricky...

2. Look to May:
If you like #1, look at the May 14/15 call spread for $0.35. That's a tough price to get, but paying a nickel more for two more months may be worth investigating. For $0.40, though, maybe Mar is better.

3. As always:
Skipping the trade is reasonable -- maybe the calls today are closing and the OI will go down on Monday. Or, even if the OI does go up, maybe the order flow is Much Ado About Nothing.

This is trade analysis, not a recommendation.

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