Monday, March 28, 2011

Limelight Networks (LLNW) - Calls Trade on Facebook Rumor

LLNW is trading $6.94, up 5.6% with IV30™ up 15.0%. The LIVEVOL™ Pro Summary is below.


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Limelight Networks, Inc. (Limelight) is a provider of content delivery network services.

The news moving the stock seems to be a rumor over a potential content deal with Facebook. My source for that was Andrew Wilkinson's post on Seeking Alpha. You can read that article here: Monday Options Brief.

The company has traded over 10,000 contracts on total daily average option volume of just 1,885. All but 790 contracts have been calls yielding a 12.6:1 call:put ratio. The most active lines are Apr 7 calls and secondarily, the May 7 calls. The The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that both the Apr and May 7 calls are mostly opening (compare OI to trade size). It looks like the Apr 7 calls are purchases and the May 7 calls feel like sales.

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

It's interesting to see that the May 7 strike has higher vol than the Apr 7, but the May 8 strike has lower vol than the Apr 8. This makes a bunch of potential spreads worth examining.

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).

The stock jumped 27% in mid Feb on a better than expected earnings result. The stock closed at $8.20, but since then has fallen all the way back down to the $6 level (and today is spiking to nearly $7). The vol spiked ahead of the news (or on the news) and has come back down to the long-term historical trend (HV180). This stock definitely has the propensity to jump around.

Possible Trades to Analyze
1. Spread the Apr Skew:
Buy the Apr 7/8 call spread for $0.30. This sells ~ 5 points higher vol than it purchases, which is a nice trick in a call spread.

2. Calendar Spread Apr/May upside skew:
Buy the Apr/May 8 call spread for $0.25. This sells ~ 4 points higher vol than it purchases.

3. Diagonal Calendar:
Buy the May 7 calls for $0.75.
Sell the Apr 8 calls @ $0.10.
If the stock rips up, this trade likely wins. If the stock stays around $7 into Apr expo, then the trade can be extended with a sale of the May 8 calls.

This is trade analysis, not a recommendation.

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