Tuesday, February 21, 2012

MetroPCS Communications (PCS) - Skew Moves Abruptly in a Day; Order Flow into Earnings the Culprit

PCS is trading $10.37, up 0.3% with IV30™ up 18.8% as of ~10:45am EST. The LIVEVOL® Pro Summary is below.


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MetroPCS Communications, Inc. (MetroPCS Communications) is a wireless telecommunications provider in the United States measured by the number of subscribers served. The Company offers wireless broadband mobile services under the MetroPCS brand in selected metropolitan areas in the United States.

PCS has earnings due out 2-23-2012 BMO, so the last trading day before earnings would be 2-22-2012 (aka tomorrow). The stock caught my attention for two reasons: (1) Bullish order flow and (2) Upside Skew and a resulting vol diff.

Let’s start with the order flow. The Livevol® Pro Stats Tab and Day’s Biggest Trades are included below.

We can see that over 7,600 calls have traded today, yielding a 34.6:1 call:put ratio. The total daily average volume in PCS is 2,085, so the call volume is substantial. The action has been in the Mar 12 calls, where over 5,250 have changed hands. I’ve included the Options Tab, below.

Note that the existing OI in those calls is just 39, so these are substantially opening. My best guess is that the order flow is getting long these calls, though it is a bit ambiguous. The circumstantial confirming evidence is the skew. Let’s look at that, below.

Check out that awesome upside skew in Mar. While “normal” skew exhibits lower vols as strikes increase, it’s the complete opposite for PCS. That is likely due to order flow. How do I know that? I’ve included the skew chart as of last Friday, below.

And we can see here how normal the skew is – lower vols to higher strikes. Livevol® Pro is pretty awesome… just sayin’. Can’t trade without it.

Finally, let’s look to the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

I wrote about this one for the TheStreet (OptionsProfits), so no specific trade analysis here. I will say that on the stock side, we can see the cataclysmic drop off of earnings in early August of 2011. The stock dropped 36.6% in that one day -- so there's recent history of large moves off of earnings. On the vol side, we can see how just today the IV30™ has picked up. It will likely continue it’s rise into trading tomorrow (ya know, or not...). In any case, that gamma (and vol) in Mar should be expensive given earnings.

This is trade analysis, not a recommendation.

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