Tuesday, June 28, 2011

Rubicon Technology (RBCN) - Elevated Vol on a New Teenager

RBCN is trading $16.76, up 1.0% with IV30™ down 3.0%. The LIVEVOL® Pro Summary is below.


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Rubicon Technology, Inc. (Rubicon) is an electronic materials provider, which develops, manufactures and sells monocrystalline sapphire and other crystalline products for light-emitting diodes (LEDs), radio frequency integrated circuits (RFICs), blue laser diodes, optoelectronics and other optical applications.

I wrote about RBCN on 6-9-2011 when it was a $21.98 stock -- now it's a teenager. You can read that post here: Rubicon Technology (RBCN) - Calendar Spread and a Cool Name

I found RBCN today using a real-time custom scan that hunts for elevated vol.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20 LTE 10
HV180 - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated 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), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching.

The RBCN 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™: 63.20
HV20: 52.80
HV180: 53.09

So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock. It is interesting to note that the stock's sharp drop has pushed the HV20 from ~41 to now nearly 53. Also, HV10 is nearly 61.

Let's turn to the Skew Tab.

It's an odd skew in that not only does it flatten near the money then spike back up to the OTM calls, but that it has the same shape for both front two months. The Aug 22 calls are $0.15 x $.060 -- so we're not talkin' about nickel options here.

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

Possible Trades to Analyze

1. Sell the ATM strangle:
a. A sale of the Jul 16/17 strangle and then a cover with the 15/18 strangle receives ~$0.25 and risks $0.75.

b. A more risky version of trade (a) is to sell the short strangle twice and buy the long strangle once. This collects more premium (duh) and therefore sells more vega -- but, it is naked upside and downside risk.

c. A third alternative is to do (b) but only sell the downside twice and avoid the risk of a takeover and RBCN going to $30 (or whatever).

This is trade analysis, not a recommendation.

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