Wednesday, October 12, 2011

VirnetX Holding (VHC) - Elevated Vol in a Market of Dipping Vols

VHC is trading $15.97, up 0.9% with IV30™ up 2.2% as of ~11:30am EST. The LIVEVOL® Pro Summary is below.


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VirnetX Holding Corporation (VirnetX) is a development-stage company. The Company is engaged in developing and commercializing software and technology solutions for securing real-time communications over the Internet.

VHC is an interesting company to follow as so much of their business model is based on patents – licensing and securing. Given the nature of patent news, the implied often times trades above the short-term and long-term historical realized vol and today is no different. Let’s turn to the Charts Tab, below (6 months). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

This has been a $40 stock in last few months and is now trading below $16. With respect to the vol, we can see the diff that has opened up between IV30™ and HV20 and HV180. Specifically:

IV30™: 131.13
HV20: 113.09
HV180: 100.60

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

Most notably, we can see the front month is substantially depressed to the Nov vol for ATM options. Oct vol is priced at ~105 and Nov is priced at ~133. Earnings are likely due out in the Nov cycle, so a big part of that elevated vol could be the earnings vol. That depressed Oct vol is a bit of an issue. More on that below.

Finally let’s look to the Options Tab for completeness.

I wrote about this for the (OptionsProfit) so no specific trade analysis on this one. I will note that the 52 wk range for VHC stock price is [$11.04, $41.77]. The ATM vol in Oct is actually below the HV20 so a vol sale in the near-term would seem best to the wings (which are priced above HV20 and HV180). Given the volatile nature of this company and the depressed front month vol, I'm not doing back flips over that vol sale of the Oct meat and selling earnings vol (Nov) is another beast in and of itself. In a market with shrinking vols of late, VHC is intriguing but the positions to examine are a bit rough given the front to back vol diff.

This is trade analysis, not a recommendation.

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