Tuesday, May 3, 2011

BMC Software (BMC) - Earnings Bet To the the Upside

BMC is trading $49.29, down 1.3% with IV30™ unched. The LIVEVOL® Pro Summary is below.


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BMC Software, Inc. is a software vendor. The Company provides systems management, service management and automation solutions primarily for large enterprises.

The company earnings coming up tomorrow AMC and the order flow to the upside caught my attention. The company has traded over 22,000 contracts on total daily average option volume of just 1,802. Calls have traded on 166:1 ratio to puts. The largest trade was 10,000 May 52.5/55 call spreads purchased (200,000 contracts). The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls on both lines are mostly opening. I actually believe that May 52.5 call OI to be long, so I expect the interest to jump to around 15,000 by tomorrow. I also think the May 55 call OI is long -- so that will remain at ~5,000 tomorrow though it will be short rather than long, IMO.

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

There's an upside bend to the OTM calls in both May and Jun, with May (earnings) much more pronounced.

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 has sort of stood still for a while. Over the last six months the implied has traded over the historical (both short- and long-term) almost everyday. As of now the vol difference between IV30™ and HV20 is ~18 vol points -- or, said another way, IV30™ is more than 200% of HV20.

Possible Trades to Analyze
Some skew trades are on the table.

1. Trade the May/Jun upside skew difference:
May/Jun 55 call spread sells ~ 8 vol points higher than it purchases. But, this is also an earnings month to back month trade -- not just skew.

2. Trade the May upside skew:
May 52.5/55 call spread (i.e. copy order flow)
-- OR --
May 55/57.5 call spread (but the 57.5 call sale should be GTE 0.125).

This is trade analysis, not a recommendation.

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