Monday, June 6, 2011

InterDigital (IDCC) - Vol Rising, Puts Trade

IDCC is trading $37.46, down 1.1% with IV30™ up 4.5%. The LIVEVOL® Pro Summary is below.


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InterDigital, Inc. (InterDigital) designs and develops advanced digital wireless technologies for use in digital cellular and wireless IEEE 802-related products and networks.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.

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), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated front month vol simply because earnings are approaching.

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

We can see how the monotonic term-structure as the front months are more expensive than the back. This feels like an event is coming, but it's not earnings. In fact, earnings are due out (projected) after the July cycle, so they would be in the Sep cycle (and Aug when it comes out). The Sep cycle is priced 26 points lower in vol than Jun, or said differently, Jun is is nearly 50% higher vol than Sep.

The order flow has shown what looks like a double down of long puts in Jun on the 35 strike and opening puts in Jul 30 and 35, also long.  So, in English, substantive OTM put buying in the front two months.

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).

Check out how high IV30™ is relative to the short-term historical vol (HV20™) and the long-term historical vol (HV180™). Specifically:

IV30™: 64.76
HV20: 39.49
HV180: 40.96

Again, that rising vol points to a vol event/news coming out in this options cycle.

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

Potential Trades to Analyze
This is certainly one that requires knowledge of the news that's driving vol up. Doing a calendar gets short gamma, and that might be the absolute worst thing to do right now... Then again...

This is trade analysis, not a recommendation.

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