Tuesday, August 23, 2011

AsiaInfo (ASIA) - Exploding Vol, Dropping Stock, Stock Halt Risk

ASIA is trading $9.19, up 5.2% with IV30™ up 3.2%. The LIVEVOL® Pro Summary is below.


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AsiaInfo-Linkage, Inc. (AsiaInfo-Linkage), formerly AsiaInfo Holdings, Inc., is a provider of telecommunications software solutions and information technology products and services in China.

The stock is down over 35% since 8-3-2011 (so 20 calendar days) with a poorly received earnings report on 8-4-2011 AMC. After earnings, the stock has continued to drop dramatically. Here's a nice summary from The Motley Fool on 8-12-2011:

What: A week after plunging as much as 25% on disappointing guidance, shares of AsiaInfo-Linkage fell as much as 16% in early trading and stayed down much of the day, closing off 13.7%.

So what: It's hard to say exactly what spurred the selloff, but it's worth noting that, over the past quarter, AsiaInfo-Linkage had become a favorite buy among institutional investors seeking Chinese names. Perhaps poor guidance has enticed Big Money managers to flee the stock?
Source: AsiaInfo-Linkage Shares Plunged: What You Need to Know, by Tim Beyers.

Let's start with the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

The stock was as high as $22.91 in early April, so it's down ~60% in four and a half months. But check out the vol chart! Specifically:

IV30™: 274.11
HV20: 118.42
HV180: 59.70

The Sep ATM options are priced at ~290 vol. Putting that into actual dollars -- the Sep ( straddle has fair value of ~$5.20, or ~57% of the stock value for options expiring in a few weeks.

Let's turn to the Skew Tab snap (below) to examine the vols by strike by month.

While the vol is extraordinarily elevated, the skew shape itself is quite normal. There aren't any weird kinks or even parabolic skews. The downside is bid relative to the upside, and the term structure is monotonically increasing from the back to the front.

Finally, let's turn to the Options Tab, for completeness.

Possible Trades to Analyze
This one is wrapped up in so many risks it's hard to really take a position. A few things that I do note:

- The Sep 4 puts are priced to over 350 vol.
- The Sep 4/5 1x2 (buy 1 Sep put and sell 2 Sep 4 puts) can be done for a credit (I think). That would be safe to under $3.00 in stock by Sep expo.
- This is a Chinese stock with some serious risk -- it has happened before (ad may happen again) where the stock is halted over multiple option expirations and exercise decisions become quite a task; especially if you have short options as well, given that getting exercised on is random.

This is trade analysis, not a recommendation.

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  1. You mentioned "ASIA" is wrapped in risks. Outside of the falling stock price, which looks to be due to institutional selling, is there anything on the horizon that could cause the IVs to be so high? these IVs are larger than bio-pharms with PDUFA dates, lol.

  2. I agree -- it feels like a lot more than inst selling, feels like a big announcement, or court date, or something, but I can't find it...