Thursday, May 19, 2011

Unisys Corp (UIS) - Depressed Vol and Post Earnings Pattern

UIS is trading $27.93, down 0.8% with IV30™ up 0.6%. The LIVEVOL® Pro Summary is below.


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I found this stock using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price >= $7
IV30™ - HV20™ <= -8 >= -40
HV180™ - IV30™ >=7
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >= 32

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 short-term implied vol (IV30™) that is depressed both to the recent stock movement (HV20) 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 UIS Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

We can see:
IV30™: 37.42
HV20: 63.31
HV180: 53.50

So, IV30™ is depressed relative to the short-term and long-term realized movement of the stock. There is an interesting trend there -- two cycles ago the stock gapped on earnings as well, the HV20 jumped (obviously), but the stock movement after that pop continued and the HV20 actually increased for a month (ish) after.

That same pattern is developing now -- even though the HV20 popped on the earnings move, it has increased slightly in the following weeks. Last time, the IV30™ eventually traded well above the HV20 -- we'll see if that's the case this time -- if it is, vol is likely not a purchase.

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

The shape of the skew is normal -- quite pretty really. I do note that Jun vol is below Jul vol.

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

Possible Trades to Analyze
1. Purchase Jun vol:
The ATM straddle is priced at ~37 vol as is the ATM strangle. The downside wings are priced at higher vol as is the upside for the 31 and 32 strikes (see skew chart). A purchase of the meat and sale of the wings is a possible trade worth examining -- perhaps even on a ratio to the downside.

2. Opposite:
If UIS stock follows the same pattern it did after the large move on earnings two cycles ago, vol might actually be a sale.

This is trade analysis, not a recommendation.

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