Friday, July 29, 2011

Sonus Networks (SONS) - Size Call Buyer Ahead of Earnings

SONS is trading $2.87, down 3.7% with IV30™ up 20.3%. The LIVEVOL® Pro Summary is below.


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Sonus Networks, Inc. (Sonus Networks) is a provider of voice, video and data infrastructure solutions for wireline and wireless telephone service providers.

The company has earnings due out early next week (8-2-2011) and a very large trade just crossed the tape. This is an order flow note.

The company has traded over 10,800 contracts on total daily average option volume of just 1,889. Calls have traded on a 5425.5:1 ratio, or in English, all but two contracts have been calls. The action is easy -- 10,755 Aug 3 calls have traded today. The largest print was a 10,000 lot, customer purchased outright (no stock) for $0.15. Color provided by Mike Bristow of Vtrader Group. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Aug 3 calls are essentially entirely opening (compare OI to trade size). A great question here is, who would take the offer side of this trade untied to stock?...

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

We can see the term structure is monotonically increasing to the front. The Aug vol is up 15.1 points or 26% today.

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).

A couple of things here really stand out. First, check out the earnings moves off of the last two cycles (highlighted in the chart). A stock gap up and then a stock gap down. Second, this time we can see the stock dipping into earnings with IV30™ popping. If this flow continues, I'd expect to see IV30™ hit a new annual high. For the record, the 52 wk range is [35.66, 77.38], so it's not too far from the top level right now.

Possible Trades to Analyze

This is trade analysis, not a recommendation.

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  1. Interesting, but I believe earlier this month there were call sellers (check out the flow on 7/18) in larger size, so this buying may be a hedge to the longer dated short position.

  2. Ah, very possible, thanks.