Friday, February 25, 2011

Rambus (RMBS) - Upside Skew Divergence Forms

RMBS is trading $20.88, up 2.9% with IV30™ up 3.7%. The LIVEVOL® Pro Summary is below.


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Rambus Inc. (Rambus) is a premier technology licensing company. The Company is engaged in designing, developing and licensing chip interface technologies and architectures.

RMBS has eternally been embroiled in lawsuits/patent cases. Vol seems like it's always elevated (I know that's tautologically impossible... just work with me...)

The company caught my attention today because of the skew divergence that has opened up to the upside between Mar and the back months (and even an earnings month). Let's look to the Skew Tab, below.

Check out the vol difference in the upside skew (highlighted). In English, the upside calls in Mar (red) have substantially higher vol than the upside calls in Apr (yellow). Let's look to the Options Tab.

In terms of the actual vol differences:
23 strike: ~5.5 vol points
24 strike: ~10.0 vol points
25 strike: ~10.5 vol points

It's interesting to note that RMBS has earnings due out in late April -- likely the May cycle. So, a purchase of May funded by a sale of elevated Mar (and then possibly April too) could be a trade to analyze.

In terms of the actual vol differences:
23 strike: ~SAME vol
24 strike: ~5 vol points
25 strike: ~5.5 vol points

So at least the possibility of a vol scalp exists while owning the earnings month vol. 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 large(ish) stock movement on 12-6-2010, and more recently, a stock dip of ~4% over the last week. We can also see the IV30™ rising to the high 60's. One extra note here, the 52 wk. high in IV30™ is 113.78 (i.e. a lot bigger).

This is trade analysis, not a recommendation.

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