Thursday, January 26, 2012

InterDigital (IDCC) - Elevated Vol Finally Lets Up; Vol Nears Annual Low After Stock Gap

IDCC is trading $36.45, up 1.1% with IV30™ down 2.9%. 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.

This is a vol note on a stock I have written about a lot. I've included the links below -- the titles alone kinda tell the story:

11-28-2011: InterDigital (IDCC) - Elevated Vol... Again... Again...
11-7-2011: InterDigital (IDCC) - Elevated Risk, Calendar Vol Diff; Risk Building Again
7-12-2011: InterDigital (IDCC) - Elevated Vol to Wings in Front
7-19-2011: InterDigital (IDCC) - Elevated Vol Portended Company News

So basically, vol has been elevated and the stock has moved with enormous volatility. The 52 wk range in stock price is [$34.37, $82.14] and the 52 wk range in IV30™ is [39.03%, 139.61%]. The current IV30™ is in the 10th percentile (annual).

Let's turn to the Charts Tab (one year), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

On the stock side, we can see the tendency of the stock to gap -- both down and up. Sometimes it's earnings related, sometimes... it's not. This company, as the description reads, engages in "the prosecution, maintenance, enforcement, and licensing of patents." It's the valuation of its patent portfolio that has lead to many of the wild swings in the stock price.

The news from 1-24-2012 (the latest stock gap down) is... not good... here's a snippet:

Shares of the technology license wrangler were set to open about 17% lower this morning. The company just told investors that its strategic review failed to scare up any buyers of its wireless patents over the past six months.

So there won't be a sudden gold rush; it's back to business as usual. Chairman Terry Clontz manages to put a positive spin on the failed sale, because it "helped to reaffirm our belief in the breadth and depth of the patent portfolio, the strength of the R&D team, and our technology vision for the future."

It's his job to stay positive, of course. The reality is a bit grimmer: The real gold-rush days of patent sales are now firmly behind us, and InterDigital missed the starting gun.

Source: via Yahoo! Finance -- Sorry, InterDigital -- You Missed the Starting Gun, written by By Anders Bylund (TMF Zahrim).

Yikes... It seems that both the stock gap down and the dropping vol make sense. This is a great example of how a stock can go down and vol may NOT go up.

Looking to the vol portion, we can see that the IV30™ has been dipping hard for the last several months and has continued that drop today.

Let's turn to the Skew Tab, below.

The most notable phenomenon I see is that IDCC exhibits an upward sloping skew to the OTM calls. That's not "normal" skew for the majority of stocks and reflects upside risk (potential) that's greater (more likely) than the downside, per the option market.

Finally, let's turn to the Options Tab, below.

The next earnings release seems to be scheduled for late Feb but outside Feb expiry. Having said that, the Mar options are priced just 0.6 vol points above Feb. All in all, IV30™ priced to the 10th percentile (annual) and dipping, and with earnings due out, seems... interesting.

This is trade analysis, not a recommendation.

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