Wednesday, April 6, 2011

VirnetX (VHC) - Wild Ride in Technology Patents

VHC is trading $25.26, down 8.1% with IV30™ up 0.4%. The LIVEVOL™ Pro Summary is below.


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VirnetX Holding Corporation (VirnetX) is a development-stage company. The Company is engaged in developing and commercializing software and technology solutions for securing real-time communications over the Internet. The Company is focused commercializing a patent portfolio for securing real-time communications over the Internet.

The stock popped yesterday,so today's dip should be taken in context. On 3-30-2011 there was some big news:

VHC today announced that it has been granted U.S. Patent No. 7,921,211... seeking to add allegations that all of the defendants in its two currently-pending patent infringement lawsuits, VirnetX Inc. v. Cisco Systems, Inc., Apple Inc., Aastra USA, Inc., Aastra Technologies Ltd., NEC Corporation, and NEC Corporation of America and VirnetX Inc. v. Mitel Networks Corporation, Mitel Networks, Inc., Siemens Enterprise Communications GmbH & Co. KG, and Siemens Enterprise Communications, Inc. infringe this new patent.

VirnetX also added allegations that Apple's iPad 2 infringes its patents. VirnetX now accuses the following Apple products of patent infringement: iPhone, iPhone 3G, iPhone 3GS, iPhone 4, iPod Touch, iPad, and iPad 2.

VirnetX Awarded New Patent, Included in Current Infringement Lawsuits, from PR Newswire.

The company has traded over 15,000 contracts on total daily average option volume of just 3,845. Calls have traded on 1.6:1 ratio, which is actually below the daily average of 3.2:1. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action -- sort of rapid fire all over the front month. It's interesting that vol is essentially unched with stock moving this much -- this could indicate that buying and selling of option premium is about even.

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

Although the skew is rickety, it has maintained a generally "normal" shape, with the possible exception of an upside call vol increase (ish). I do note that the front month is substantially elevated to the second while earnings are in the back month. The option market is reflecting a lot of risk in this stock, including the very near-term.

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 first thing that jumps out at me is the stock move. It looks like it's up over 100% in the last month. In the vol portion (bottom), we can see that the IV30™ has risen with the stock and has actually outpaced the realized vol.

Possible Trades to Analyze
This one feels really risky. From the news that I've read, the only real thing I discovered is that I haven't discovered anything. Seems like there's a ton to know about the potential news/announcements and that info can't be found easily. I'd be cautious of the calendar -- that could blow up pretty bad on a huge stock move and/or a vega crush. This is just a really interesting stock to have on the radar, IMHO.

This is trade analysis, not a recommendation.

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