Friday, May 13, 2011

Novellus Systems (NVLS) - More Skew on Takeovers

NVLS is trading $37.61, up 0.8% with IV30™ up 3.4%. The LIVEVOL® Pro Summary is below.


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Novellus Systems, Inc. (Novellus), together with its subsidiaries, develops, manufactures, sells and supports equipment used in the fabrication of integrated circuits, commonly called chips or semiconductors.

This is another one with some cool skew to the upside. Here's some quick relevant news as of 5-5-2011:

Following yesterday’s surprise news that Applied Materials has agreed to buy Varian Semiconductor for $63 a share – a 55% premium to the close on Tuesday – investors are now scrambling to find other semiconductor equipment companies that might be subject to a round of industry consolidation.

This morning, the most prominent evidence of a spreading outbreak of speculative fever is Novellus, which has spiked $2.41, or 7.3%, to $35.33. In particular,there is speculation this morning that Tokyo Electron may have been a losing bidder for Varian, and that the company may respond with an offer for Novellus.
Source: Forbes: Novellus Spikes As Street Hunts For Next Semi Equip Deals By Eric Savitz


Let's turn to the skew today, as it's showing a vol diff to the upside as so many of these takeover rumors are.

Both May and Jun bend up to the upside where Sep shows a normal (downward sloping) skew. Once you get out to the 40 strike, the vol diff becomes pretty significant.

Let's look to the Options Tab to see the exact values.

The May/Jun 40 vol diff is nearly 10 vol points (or, May is approximately 25% more expensive in terms of vol than Jun). The May/Sep vol diff is ~12.5 vol points (May is 30% more expensive in terms of vol than Sep).

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).

We can see the stock popped on 5-5-2011 with the VSEA takeover and vol rose with it. Today, NVLS stock price is now higher than the 5-5-2011 excitement, though IV30™ is not quite as high.

Possible Trades to Analyze
Skew spreads to the upside seem worth some time to examine. Whether it's intra-month, inter-month (single) or inter-months (plural), there's definitely some vol stuff happenin'.

This is trade analysis, not a recommendation.

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