Monday, November 21, 2011

Spreadtrum Communications (SPRD) - Elevated Vol After Flashes of "Normalcy"

SPRD is trading $24.53, down 9.8% with IV30™ up 22.0%. The LIVEVOL® Pro Summary is included below.


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Spreadtrum Communications, Inc. is a fabless semiconductor company that designs, develops and markets baseband processor, radio frequency (RF) transceiver and turnkey solutions for the wireless communications and mobile television market.

Just to be extra clear, this is a company based in China.

I found SPRD 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 SPRD 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).

This chart is like a movie -- has several beats, turning points, the point of no return and all hope is lost. Yet, after all that, its a $24 stock. On the vol side we have the subplot -- an incredible rise to over 220% in Jun, then down in to the "normal" stock realm as low as 56.15 (and an annual low of 37.78). As of late (excluding the last few days), the vol was still nice and neat. Then... it wasn't... Today the vol has popped (again) and the implied is trading well above the historical measures. Specifically:

IV30™: 88.73
HV20: 52.26
HV180: 77.44

The incredible spike to over 220 in Jun has the chart a little difficult to examine in the current period so I've included the vol chart over the last 30 calendar days, below.

Let's turn to the Skew Tab, below.

The skew has retained a normal shape, and the front month downside is priced above the back (in vol terms).

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

Possible Trades to Analyze
I'll skip the trade analysis in place of a major disclaimer. It's not uncommon for these Chinese stocks to halt for an extended period -- like months. The options stop trading as well (obviously) and short options are left in the dark as to what position they will have, and in all fairness, long options don't exactly know what to do either (but at least they have the choice). Tread carefully... One last thought, where's the risk here? Upside or down?... Hmm...

This is trade analysis, not a recommendation.

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