Wednesday, April 20, 2011

ZAGG Inc. (ZAGG) - Depressed Vol into Earnings

ZAGG is trading $8.06, up 0.3% with IV30™ up 2.6%. The LIVEVOL® Pro Summary is below.

ZAGG Incorporated (ZAGG) designs, manufactures and distributes protective coverings, audio accessories and power solutions for consumer electronic and hand-held devices under the brand names invisibleSHIELD, ZAGGaudio, and ZAGGskins.


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I found this stock using a real-time custom scan. This one hunts for low vols 60 days out. There's a twist here though -- ZAGG has an earnings cycle in May.

Custom Scan Details
Stock Price >= $7 <= $70
IV60™ >= 1
IV60™ - HV60™ <= -8 >= -40
HV180™ - IV60™ >= 8
Average Option Volume >= 1,200
Industry != Bio-tech

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol Pro™.

The goal with this scan is to identify intermediate-term implied vol (IV60™) that is depressed both to the intermediate stock movement (HV60) 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) and want to avoid bio-techs (and their crazy vol).

The ZAGG Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV60™ - yellow vs HV60 - blue vs HV180 - pink).

We can see:
IV60™: 74.75
HV60: 90.94
HV180: 89.70

So, IV60™ is depressed relative to the mid-term and long-term realized movement of the stock. I've included the Skew Tab below as well.

It's a bit odd to me that May and Jun have almost identical vols given that earnings are approaching. Weird, no?...

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

Possible Trades to Analyze
1. Start simple: Buy Jun vol:
Buy the Jun 8 straddle for $1.90 and own ~73 vol in anticipation of a large earnings move.
NB: For a delta bet, you can examine just doing one side of the straddle.

2. Slightly different: Sell Jun / Buy May.
A vol difference should open up between May and Jun (i.e. Jun should be lower than May as earnings approach).
Buy the May 8 straddle and sell the Jun 8 straddle. Ideally, this trade is closed before earnings.

3. Completely backwards:
Sell the May vol -- maybe the discounted risk reflected by the option market is right on.
Sell the May 7.5 straddle @ $1.35.
Buy the May 6/9 strangle or $0.40.
Receive $0.95 and risk $0.55 to bet on ZAGG staying close to $7.50 on May expo (or after earnings).

This is trade analysis, not a recommendation.

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