Friday, October 21, 2011

Ciena (CIEN) - Depressed Vol into Earnings

CIEN is trading $12.45, up 0.6% with IV30™ down 5.7%. The LIVEVOL® Pro Summary is below.


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Ciena Corporation (Ciena) is a provider of communications networking equipment, software and services that support the transport, switching, aggregation and management of voice, video and data traffic.

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.

The CIEN 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).

This was ~$30 stock six months ago and is now younger than a teenager. On the vol side we can see how the implied is in fact depressed relative to the two historical measures.

I've blown up the vol chart for a better view, below (same scale, same legend).

We can see:
IV30™: ~59.81
HV20: 74.12
HV180: 72.66

So, IV30™ is depressed relative to the short-term and long-term realized movement of the stock. I've included the Skew Tab below.

Pretty normal lookin' -- Nov downside is more expensive than the Jan'12 downside (wrt vol), and vice versa to the upside. CIEN usually has earnings in Dec, so those Jan options should have the earnings report.

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

The ATM strangle (12/13) in Nov is worth ~$1.20.

Possible Trades to Analyze
Owning Nov seems ok, but owning Jan for still less than the historical vol measures also seems, ok (ish) given that earnings are embedded in there. Basically I don't like buying options but I had to do something different for some variety... I'm just sayin'...

This is trade analysis, not a recommendation.

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