Monday, November 7, 2011

InterDigital (IDCC) - Elevated Risk, Calendar Vol Diff; Risk Building Again

IDCC is trading $44.11, down 2.6% with IV30™ up 3.5%. The LIVEVOL® Pro Summary is below.


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InterDigital, Inc. (InterDigital) is a holding company, and its various subsidiaries engage in technology research and development activities or in the prosecution, maintenance, enforcement, and licensing of patents.

The last part of that sentence is interesting -- "prosecution, maintenance, enforcement, and licensing of patents."

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. It also shows an elevated implied to both the short-term and long-term historical measures.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.

The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. 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 front month vol simply because earnings are approaching.

Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line).

I've omitted the weekly options but do note that IDCC has weeklies listed. We can see the parabolic shape to the Nov options and how each strike in Nov is elevated to Dec. The last earnings cycle for IDCC was 10-26-11, so this is not earnings related.

Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

What I'm interested in here is the vol portion. Check out how high IV30™ is relative to the short-term historical vol (HV20) and the long-term historical vol (HV180). Specifically:

IV30™: 91.76
HV20: 61.04
HV180: 76.67

So, in addition to the calendar diff, we can see the implied is elevated to the historical measures. On the stock side, I've highlighted the massive stock pop in mid July. IDCC underlying went from $41.51 to $74.27 in four days (7-18-2011 to 7-21-2011), close-to-close on patent fun. Now we're in early Nov and the stock is all the way back down to where it started.

I wrote about IDCC before the "events" here:
7-12-2011: InterDigital (IDCC) - Elevated Vol to Wings in Front
7-19-2011: InterDigital (IDCC) - Elevated Vol Portended Company News

Finally, let's look to the Options Tab (below).

Potential Trades to Analyze
Having reviewed what IDCC did in Jul, I'm all of a sudden less enthused with a short gamma position. Having said that, owning Dec against the weekly and the Nov monthly is interesting -- perhaps diagonal, owning abs(deltas) or the opposite for you risk lovers trying to capture that premium on a ratio.

This is trade analysis, not a recommendation.

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