Thursday, February 10, 2011

Sequenom (SQNM) - Vol Difference Opens up in Reverse on Earnings

SQNM is trading $7.38, up 10.0% with IV30™ down 2.2%. The LIVEVOL® Pro Summary is below.


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Sequenom, Inc. (Sequenom) is a diagnostic testing and genetics analysis company. I found this one by accident really, but the vol difference between the OTM calls in the front two months is compelling given that earnings are in the Mar cycle.

The company has traded over 12,500 contracts in the first couple of hours on total daily average option volume of just 2,310. Calls have traded on a 13.4:1 ratio, but the calls look like sales. The Stats Tab snapshot is included (below).

The Options Tab (below) illustrates the action. The Mar 8 calls, Jun 9 calls and Feb 7 calls are most active and all feel like sales to me.

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

While the calls are being sold, the Mar vol is going down in the OTM calls, but Feb is not as much. In English, there's a vol difference that has opened up where the back month with earnings can be purchased at a cheaper vol than the front month without earnings.

Since this stock is a bio-tech/pharma, the earnings dates aren't necessarily the giant news, but it's still a volatility event.

Possible Trades to Analyze
1. Calendar spread the OTM Feb/Mar upside skew:
Sell the Feb 8 call @ $0.09 (~60 vol).
Buy the Mar 8 call for $0.28 (~52 vol).
Pay $0.19 to own the one strike OTM calls in a bio-tech with earnings. Not too shabby for those that like to bet on bio-techs.

2. Calendar spread the OTM Feb/Mar downside skew:
Sell the Feb 7 put @ $0.06 (~50 vol).
Buy the Mar 7 put for $0.27 (~50 vol).
Pay $0.21 to own the downside in Mar vs. Feb and own an earnings event for an even trade of vol.

3. As always, with bio-techs, sitting this out might be the most reasonable play of all.

This is trade analysis, not a recommendation.

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