Monday, May 9, 2011

Teradyne (TER) - Calls Trade, Vol Rises After Earnings Gap Down

TER is trading $16.31, up 1.4% with IV30™ up 1.2%. The LIVEVOL® Pro Summary is below.


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Teradyne, Inc. (Teradyne) is a global supplier of automatic test equipment. I noticed the company today because of some upside order flow. The company has traded over 15,000 contracts on total daily average option volume of just 2,224. Calls have traded on a nearly 31:1 ratio with puts with the action in the May 17 and Jun 17 lines (~10,000 contracts combined). The order flow looks long to me. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that both the May 17 and Jun 17 calls and are mostly opening (compare OI to trade size). Interestingly, Jun vol is actually down, while May is up.

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

I've highlighted the 17 strike. There's a noticeable upside skew in the front month 17 strike -- likely from order flow. That spike does present some interesting trades to analyze, though the vol diff that has opened up isn't "super" huge.

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 gapped down more than 12% from earnings on 4-28-11 (actually 4-27-11). That gap raised HV20 artificially high. We can see the IV30™ dipped off of earnings (as expected), but has crept back up to nearly the pre-earnings level in the last week (ish). As of right now the HV180 (long-term historical vol) is just above the IV30™, or in English, IV30™ feels sort of "fair value" right here.

Possible Trades to Analyze
1. May skew intra-month:
The May 16/17 call spread sells ~41 vol and purchases ~ 37 -- so a four point vol scalp in a call spread, which is a nice trick. Note that there is currently $0.31 in parity to the spread.

2. May/Jun skew inter-month:
It's not a huge vol diff, but the May 17 strike is priced slightly above Jun 17. An extension to this trade could be to sell the Jun 18 call after expiration if the Maj/Jun 17 call spread works out. That Jun 18 line is slightly elevated vol to the Jun 17 (as of right now). In other words, that trade could sell 2 higher vol options to one lower while never being naked short the upside.

This is trade analysis, not a recommendation.

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