Thursday, April 28, 2011

VeriFone (PAY) - Elevated Vol Trend

PAY is trading $53.96, up 0.4% with IV30™ unched. The LIVEVOL® Pro Summary is below.


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VeriFone Systems, Inc. (VeriFone), formerly VeriFone Holdings, Inc., is a holding company for VeriFone, Inc. The Company is engaged in the secure electronic payment solutions.

I found this stock using a real-time custom scan. This one hunts for high vols. I posted an article on, so now specific trade analysis here.

Custom Scan Details
Stock Price >= $7 <= $70
IV30™ - HV20™ >= 10
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >=10 <=60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20) and the long term trend in stock movement (HV180). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching. The PAY Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

We can see:
IV30™: 49.61
HV20: 35.67
HV180: 41.36

So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock. It looks like the implied has been trading elevated since the end of March (ish). Since then the stock has sort of started moving from a 42 vol(ish) to more like mid 30's (HV10, HV20 and HV30 are almost identical).

Let's look to the Skew Tab.

The shape in the front two months is normal -- actually quite pretty, with the downside (OTM puts) vol rising and the upside (OTM calls) falling by strike. The second month is slightly elevated to the front as earnings are due out in the Jun cycle (late May (ish)). Unfortunately, there don't seem to be any obvious skew bumps -- so a straight skew trade doesn't pop out at me.

Finally, let's look to the Options Tab (below).

The ATM strangle (52.5/55) is priced at ~$3.95 fair value in May and $6.80 in Jun. Or, in English, the option market reflects elevated risk (high vol).

This is trade analysis, not a recommendation.

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