Monday, September 19, 2011

Rambus (RMBS) - Vol up 300%, Options Reflect Greater Upside Potential Than Down

RMBS is trading $13.35, up small with IV30™ up 1.0%. The LIVEVOL® Pro Summary is below.


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Rambus Inc. (Rambus) is a property and technology licensing company. The Company’s primary focus is the creation, design, development and licensing of patented innovations, technologies and architectures that are foundational to all digital electronics products and systems.

The IV30™ is now above 155. The news pushing this stock surrounds yet another law suit. Here's a quick snippet from Briefing:

BWS Financial says RMBS shares have been running higher this week in anticipation of the closing arguments in the anti-trust case beginning on Monday. Firm says the speculation in the market is RMBS would reach some sort of settlement with Hynix Semiconductor and Micron Technology (MU). A settlement is probably the best course of action for all parties, they say. For RMBS, a settlement would mean the ability to see cash. Right now, even if the jury was to side with RMBS there is no timeline as to when RMBS would see any of the damages, the firm says.
Provided by (

Let's actually start with the Options Tab (below) -- the pricing of the OTM options is extraordinary.

This is a $13 stock where the front month 7 strike puts are worth ~ $0.20 and the front 25 strike calls are worth ~$0.40. Whoa... Let's turn to the Skew Tab.

A couple of highly notable phenomena:
(1) The front month is elevated to the back -- the ATM vol diff is about 20 vol points. That crazy vol in the Nov 6 puts is simply due to a wide $0.08 x $0.47 market (vol priced to mid-market).

(2) The vol rises to the upside and it's essentially monotonic. In English, the option market reflects greater upside risk (potential) than downside. Putting numbers to it, the Oct 7 puts (which are $6.35 OTM) are worth ~$0.20. The Oct 20 calls (which are $6.65 OTM) are worth ~$0.82.

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).

Starting with the stock portion, check out the price drop on 5-13-2011. The news surrounding that move is well summarized by

Shares of computer memory technologist Rambus look like Rambo came by to slap them around today. At worst, the stock dropped more than 24% below Thursday's closing price after briefly posting a 12% gain.

This frenzy is fueled by an appeals court judge sending Rambus' patent infringement case against Micron Technology back to a lower court for reconsideration, based on Rambus shredding as much as 9 tons of documents possibly pertaining to the case.

Investors are left wondering exactly what Rambus wants to hide. The outcome of several other patent lawsuits may hinge on what happens to the Micron case, with cascading effects on the entire Rambus business model. Technology patents can be fertile grounds for serious business, as proven by Universal Display and TiVo, but Rambus runs a cloak-and-dagger version of that model where your investment lives and dies by the whims of a court.
Source: Rambus Shares Plunged: What You Need to Know, written by Anders Bylund.

On the vol side, check out that "event vol." IV30™ has popped from 38.57 (on 7-22-2011) to now 155.20; that's greater than a 300% gain in less than two months as the court date has arrived.

Possible Trades to Analyze
There are four ways to play this essentially.
(1) Bet on a large drop.
(2) Bet on a large pop.
(3) Bet on a large pop or a large drop (two-sided).
(4) Bet on a delay (or something) that kills vol in the front or a result that moves stock less than the options reflect.

With creativity, each of these allow for either vol sales or vol purchases or both, either in one month or several months. Ultimately, the question becomes: are the ATM options under/over priced relative to the OTM options?

I dunno, but if there's a settlement, would either company agree (read: settle) to "something" that would make RMBS go below $6 or above $25? It seems that if the stock moves that aggressively, it wouldn't be a settlement, but rather a ruling... Or not?... How long does a ruling take relative to a settlement?...

This is trade analysis, not a recommendation.

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