Wednesday, June 15, 2011

Finisar (FNSR) - Earnings Mover, Giant Vol and Patterns

FNSR is trading $17.90, down 6.0% with IV30™ up 21.9%. The LIVEVOL® Pro Summary is below.


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Finisar Corporation (Finisar) is a provider of optical subsystems and components that connect short-distance local area networks (LANs), and storage area networks (SANs), and longer distance metropolitan area networks (MANs) fiber-to-the-home networks (FTTx), cable television networks (CATV) and wide area networks (WANs).

The company has earnings due out today AMC, and this one could be fun. Let's start with order flow. The company has traded just under 23,000 contracts on total daily average option volume of just 5,979. Puts have traded on a 3.2:1 ratio to calls. The front month vol is up 64.1 points today as the rest of this month becomes essentially pure earnings vol. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action in Jun. The Jun 18 puts and Jun 16 puts have traded 4,263 and 2,450 times, respectively. Both of those lines have traded more than twice the existing OI.

We can see the front month ATM straddle (the earnings day options) are priced at ~$2.85. Note that this is just an $18 stock. Crazy expensive right? Well, how about this:

9-2-2010 earnings cycle: The stock moved up $1.99 with the font month ATM straddle
worth $1.72.

12-1-2010 earnings cycle: The stock moved up $3.29 with the font month ATM straddle worth $1.92.

3-8-2011 earnings cycle: The stock moved down $15.43 with the font month ATM straddle worth $4.70.

Get the pattern? The last three earnings cycles the stock has gapped more than the ATM straddle, right after earnings.

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

We can see the front month is elevated to the back as it represents essentially that single event today, earnings AMC.

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 was in the mid 40's this year and now is a teenager.

Possible Trades to Analyze
This one is simple: Do you think FNSR will move more than the straddle again, or has that last gigantic move in the prior cycle created too high vol right now?  The Jun 13 puts are priced at $0.20 mid-market.  That's 280 vol.  If you're selling the earnings move, there is so juicy juice to sell.

This is trade analysis, not a recommendation.

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