Monday, May 23, 2011

Gen-Probe (GPRO) - Elevated Vol on Takeover Bids, Earnings Gaps and Calendar Spreads

GPRO is trading $80.92, down 1.2% with IV30™ down 8.6%. The LIVEVOL® Pro Summary is below.


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Gen-Probe Incorporated (Gen-Probe) is engaged in the development, manufacture and marketing molecular diagnostic products and services, which are used to diagnose human diseases, screen donated human blood, and ensures transplant compatibility.

The stock gapped up on the last earnings on 4-28-11 going from $70.16 to $79.61. Then, a few days ago (5-18-2011), the stock gapped up more than $7 on a bidding war for the stock. In a twenty calendar day period, the stock went from ~70 to over $86. Since then, it's now down over $5 from the high.

Today, GPRO just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. There's actually an interesting spread between all three months which made this one particularly interesting to me.

Custom Scan Details
Stock Price >= $5
Sigma1 - Sigma2 >= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=70
Sigma1, Sigma2 >= 1

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 back months that are cheaper than the front by at least 8 vol points. 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).

Let's look to the Skew Tab (below).

Not only can we see the vol diff between the front two months (red and yellow), but also the vol diff between the front two and the third month (green). The next earnings release is due out in the end of Jul or beginning of Aug -- so the Aug options cycle. In English, the third month with earnings has by far the lowest vol right now for the front three.

Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

We can see the stock gap up on earnings a few weeks ago and then again on 5-18-2011. IV30™ is substantially elevated to the long-term historical trend (HV180), as it should be considering the risk in the underlying. Specifically:

IV30™: 48.28
HV20™: 61.12
HV180™: 24.84

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

This is trade analysis, not a recommendation.

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