Tuesday, November 8, 2011

Comtech Telecom (CMTL) - Elevated Vol on Takeover Potential

CMTL is trading $33.78, up 2.1% with IV30™ down 1.4%. The LIVEVOL® Pro Summary is included below.


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Comtech Telecommunications Corp. (Comtech) designs, develops, produces and markets products, systems and services for communications solutions.

I wrote about CMTL on 10-6-2011. You can read that post here:
Comtech Telecomm (CMTL) - Vol Explodes 50%, Options Trade 45x Average Volume

The stock was trading $31.08 with IV30™ just above 55.

Today I found this stock using the real-time custom scan that searches for high vols relative to the short-term and long-term historical realized vol.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20 LTE 10
HV180 - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated 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 selling elevated IV30™ simply because earnings are approaching.

The CMTL 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).

We can see the stock popped on the day of that first blog post. Here's a reprise of the news:

Comtech Telecommunications Corp. (CMTL) rallied 7.5 percent to $30.32 after jumping 7.8 percent, the most intraday since Jan. 26. The communications equipment maker is attracting potential takeover interest from several government contractors, according a report by Reuters, which cited people familiar with the situation.
Bloomberg: Comtech, Constellation Brands, Express Scripts, Yahoo: U.S. Equity Movers, written by Lu Wang.

The stock closed at $30.90 on 10-6-2011 and has continued its upswing to now just below $34, since. On the vol side, we can see that the HV20 has fallen off a cliff as the stock has decided that it likes being over $30. The implied has fallen from the 55 level to 41 (ish), but that level is now well above both of the historical vol measures. Specifically:

We can see:
IV30™: 41.30
HV20: 27.60
HV180: 31.56

Let's turn to the Skew Tab, below.

We can see the Nov options are actually priced below the next two monthly expirations. The next earnings release is likely in the Dec cycle (but after Nov) so that elevated Dec to Nov and Dec to Jan is expected. There is an interesting vol spike in the Jan 37.5 calls relative to the surrounding strikes.

Let's look to the Options Tab (below).

Possible Trades to Analyze
Selling Dec feels icky given earnings are due out. Selling the Nov strangle is... I dunno... not that interesting. Doing a calendar to own Dec, maybe ratios or diagonals starts to seem like an interesting position worth examining but gets short the gamma for a couple of weeks.

This is trade analysis, not a recommendation.

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