Thursday, October 13, 2011

Micron Technology (MU) - Court Case, Vol Comps, Best Options Brokerage and Multi-leg Everything

MU is trading $5.25, up 1.0% with IV30™ up 0.4% as of ~10:50am EST. The LIVEVOL® Pro Summary is below.


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Micron Technology, Inc. is a manufacturer and marketer of semiconductor devices, principally dynamic random access memory (DRAM), Nandi Flash memory (NAND Flash and NOR Flash memory, as well as other innovative memory technologies, packaging solutions and semiconductor systems for use in leading-edge computing, consumer, networking, embedded and mobile products.

The news driving MU surrounds the court case with RMBS and patent litigation, royalties and potential punitive damages against MU (and others) for potential misuse of patents (and owed royalties). A court decision is due out any day as the jury is deliberating, although delays are the norm.

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

A couple of things to notice:
1. The stock hit its annual low of $3.97 on 10-4-2011 and has since bounced more than 30% in the last nine calendar days.
2. While the IV30™ is elevated to the long-term realized historical average (HV180), it’s in line with the short-term historical realized vol (HV20). Further, the implied is off of its high from that $3.97 day.

Let’s turn to the Skew Tab to examine the month-to-month and line-by-line vols.

The Oct vol is parabolic, but more notably, the Oct vol is elevated to the Nov vol. In English, the option market reflects the likelihood that an outcome is due out before Oct expiration (10-21-2011). I’ve highlighted the vol diff that has opened up.

Let’s turn to the Options Tab.

Note that the Oct ATM straddle is worth ~$0.69. Granted MU is a $5 stock, but still, the option market reflects fairly muted risk – or at least, not catastrophic risk one way or the other from this court decision. Of course, that doesn’t mean the option market is correct.

I wrote about this one for (OptionsProfits) so no specific trade analysis here, but given that Oct vol is less than 90, the wings are actually cheap(ish). Owning those wings funded by a sale of meat while simultaneously taking advantage of that vol diff that has opened up between Oct and Nov is a multi-legged trade with some very interesting possibilities.

On another note, since this would be so many legs it becomes quite cost prohibitive for anyone that trades at broker with a ticket charge (per trade charge).

Wouldn't it be amazing if there was a broker that never charged a ticket and offered the best:

1. Options analytics
2. Risk analytics
3. Volatilities
4. Charting
5. Multi-leg execution in the world...

...Oh, and charged less per contract than... everyone?... That would be cool...

NB: This MU is a risky trade in that it plays an “event.” So please pay special care in examining this.

This is trade analysis, not a recommendation.

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