Monday, August 29, 2011

Universal Display (PANL) - Exploding Stock, Depressed Vol

PANL is trading $49.99, down 3.3% with IV30™ up 0.3%. The LIVEVOL® Pro Summary is below.


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I found this stock using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price GTE $7
IV30™ - HV20™ LTE -8 GTE -40
HV180™ - IV30™ GTE 7
Average Option Volume GTE 1,200
Industry != Bio-tech
Days After Earnings GTE 32

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 short-term implied vol (IV30™) that is depressed 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 purchasing depressed IV30™ relative to HV20 simply because of a large earnings move.

PANL actually violates the "Days After Earnings" filter, but the move of late isn't earnings related.

The PANL 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).

The stock has been exploding of late. On 8-8-2011, the stock was trading $22.73, as of this writing, with the stock price at $49.99, that's a 120% increase in 21 calendar days.

Interestingly, the IV30™ is only 96.19 while the stock has been moving at a 179 vol over the last 10 trading days and 165 in the last 20 trading days. The stock has moved 3.3% today, and that isn't included in the HV measures as HV is calculated close-to-close. In English, the stock has moved at a substantially higher realized vol than the implied.

We can see:
IV30™: 96.19
HV20: 165.05
HV180: 85.06
HV10: 179.39

Here's a snippet from The Motley Fool which explains some of the stock's recent move:

What: Shares of OLED technology developer Universal Diplay jumped as much as 11.5% in intraday trading on heavy volume.

So what: This, my friend, is a momentum move of the purest kind. Universal Display had jumped more than 10% on three out of four trading days this week, all on reasonably substantial news, and now investors are piling on to ride this just-discovered bandwagon. All told, share prices have spiked by nearly 90% this week.

Now what: To recap this week's action, Universal Display presented an important license deal with top customer Samsung, saw LG Electronics introduce a high-volume OLED smartphone, and heard Corning (NYSE: GLW ) commit to producing glass for big-screen OLED televisions.
Source: Universal Display Shares Surged: What You Need to Know, by Anders Bylund.

Let's look to the Skew Tab, below.

The front is elevated to the back, with an interesting vol diff opening up on the 60 strike between the front two months. Oct shows a notable upside skew to the 65 and 70 calls, creating an intra-month call spread purchasing lower vol than it sells, which is "unusual" when compared to "normal" skew. You can read about normal skew and why it exists here:
Understanding Option Skew

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

Note that the Sep 70 calls are priced at ~ $0.40 fair value -- so another 40% up from here, after the recent 120% move up. The ATM straddle is priced at ~$9.50 -- that's less than three calendar weeks -- so, while the implied is trading well below the short-term realized vols, it's still over 100 for Sep options.

This is trade analysis, not a recommendation.

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