Thursday, October 27, 2011

WMS Industries (WMS) - Opening Naked Call Buyers Ahead of Earnings

WMS is trading $21.05, up 3.7% with IV30™ up 6.8%. The LIVEVOL® Pro Summary is below.


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WMS Industries Inc. (WMS) serves the gaming industry by designing, manufacturing and distributing games, video and mechanical reel-spinning gaming machines and video lottery terminals (VLTs) to authorized customers in legal gaming venues worldwide.

This is an order flow note -- specifically untied OTM call buying in the front. The company has traded over 5,800 contracts on total daily average option volume of just 350. With the exception of 42 contracts, everything has been calls, yielding a 138:1 call:put ratio. The action has been in the Nov 22.5 calls where over 5,100 have traded. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls are mostly opening (compare OI to trade size). The color I got on at least the two largest trades (1,329x and 1,074x) was a customer buyer untied (no stock). When looking down the entire option chain for WMS, I don't see any OI larger than 2,027 with nothing other than the Jan 20 puts holding OI greater than 805, so this action is very large.

The Skew Tab snap (below) illustrates the vols by strike by month.

We can see the front month is elevated to the back. The next earnings report is due out on 11-7-2011 so the Nov expo cycle has that event embedded. The flow today has pushed vol up 8.7 points (15%) in Nov while Dec is up just 1.6 points (3%).

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).

Note that on the last earnings release (8-4-2011) the stock dropped from $25.28 down to $18.22 or 28%, so it can move on earnings. The bets today are on a move up. Even with the vol pop today, the implied is still trading somewhat depressed to the short-term historical realized vol (69.14 vs. 60.83).

This is trade analysis, not a recommendation.

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