Friday, November 11, 2011

Cypress Semiconductor (CY) - Vol Pop, OTM Dec Calls Trading

CY is trading $19.43, up 5.3% with IV30™ up 4.0%. The LIVEVOL® Pro Summary is below.


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Cypress Semiconductor Corporation (Cypress) is a supplier of programmable solutions in systems. In addition to its programmable system-on-chip platform (PSoC) based programmable solutions, including TrueTouch, PowerPSoC, OvationONS, PSoC 3 and PSoC 5, Cypress also offers West Bridge peripheral controllers, Universal Serial Bus (USB) controllers, general-purpose programmable clocks, and a wide portfolio of static random access memories (SRAMs).

That sounds pretty complicated, no?...

Anyway, this is an order flow note, namely OTM Dec calls trading size. The company has traded 11,856 contracts on total daily average option volume of just 3,078 in the first hour and a half. Calls have traded on a 60:1 ratio to puts with the action in the Dec 21 and 22 calls. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that both of the Dec calls are mostly opening (compare OI to trade size). Both lines look like purchases to me, but the existing interest in the Dec 21 calls does look short to me, so I believe OI will actually go down -- i.e. go from 4,353 to zero then up again on the long side.

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

Two phenomena caught my eye. First, the Dec 21 vol is kinked up to the order flow, or in English, the vol has moved up more in that strike than surrounding strikes b/c of the demand for those options (demand up means price up means vol up). Second, the Dec options are priced to higher vol than both the Nov and Jan'12 expirations.

I didn't include the Mar skew in this image (I dunno why, just roll with me), but Mar is priced almost identical to Jan ATM. The next earnings release is actually due out just after the Jan expo. So, Dec elevated vol is not earnings related, best I can tell.

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).

We can see that the short-term realized vol of the stock is actually above the implied, so while Dec vol is elevated to the other expos, the stock is still moving with more volatility than is priced in the options.

Possible Trades to Analyze
This feels like a glow off of the CSCO earnings. Having said that, maybe that's appropriate? It feels like a bet on this would be more like in the earnings month, and buying elevated vol into Dec (which has the holiday death to vol shtuff) kinda feels icky. Of course, if the stock is taken over @ $28, then, well... ya know...

This is trade analysis, not a recommendation.

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