Thursday, March 31, 2011

Silicon Graphics (SGI) - Calls Trade Ahead of Earnings

SGI is trading $20.67, up 3.5% with IV30™ up 3.1%. The LIVEVOL® Pro Summary is below.


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Silicon Graphics International Corp., formerly Rackable Systems Inc., is a provider of clustered computing and storage, high-performance compute and storage, and data center technologies integrated with a choice of software, customer support services and professional services.

The company has traded over 5,300 contracts on total daily average option volume of just 1,416. All but 30 contracts have been calls, yielding a 177:1 call:put ratio. The action is in the Jun 19 calls where just under 3,500 have traded. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Jun 19 calls are mostly opening (compare OI to trade size). The orders look like purchases to me and with Jun vol up 1.5 points, the circumstantial evidence is in line. The largest OI in the entire option chain (that I see) seems to be 2,021 (in the Jun 20 calls), so the 3,500 that have traded today in the Jun 19 calls is quite substantial.

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

We can see a rickety skew which makes for some great trades to analyze. It's interesting that Apr vol is above May vol (by a little), while May likely has an earnings cycle (that's just a projection). I've highlighted the Jun 19 calls as well -- note that the strike is essentially perfectly in line with the rest of the strikes, so order flow hasn't done much to that line in isolation.

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).

Most notably, the stock has gone straight up since early Jan 2011. This was a $5.84 stock at one point within the last 52 wks and is now over $20.

Possible Trades to Analyze
1. Trade the Apr/May upside skew
Buy the Apr/May 24 call spread for $0.75. This purchases the earnings OTM calls for less vol than the front month that's sold. Another note: I'm just guessing about earnings -- it may be in Apr.

2. Trade the Apr/Jun upside skew:
Buy the Apr/Jun 23 call spread for $1.15 with the same kind of rationale as #1. If the trade works out to Apr expo, it can be extended with a sale of some then elevated May vol (perhaps the May 24 calls).

3. Follow the same rationale as #1 or #2, but with the puts/put spreads.

This is trade analysis, not a recommendation.

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