Thursday, March 22, 2012

Leap Wireless Int'l (LEAP) - Vol "Falls Asleep" in Perpetual Takeover Candidate

LEAP is trading $9.78, down small with IV30™ down 1.6%. The LIVEVOL® Pro Summary is below.


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Leap Wireless International, Inc. (Leap) is a wireless communications carrier that offers digital wireless services in the United States under the Cricket brand. Leap’s Cricket service offerings provide customers with unlimited wireless services for a flat rate without requiring a fixed-term contract or a credit check.

LEAP is a perpetual takeover candidate -- or at least in perpetual potential of being caught up in a takeover rumor. Today it popped up on my low vol scan.

Custom Scan Details
Stock Price GTE $7
IV30™ - HV20™ LTE -8 GTE -40
HV180™ - IV30™ GTE 7
Average Option Volume GTE 1,200
Industry != Bio-tech
Days After Earnings GTE 32

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 short-term implied vol (IV30™) that is depressed 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 purchasing depressed IV30™ relative to HV20™ simply because of a large earnings move.

The LEAP 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).

On the stock side, we can see how the underlying has found a sort of quiet period -- almost frozen in between $9 and $10. But, it's the vol that caught my attention. The implied has been trailing down -- almost sleepy. On 12-30-2011, the IV30™ closed at 102%. As of this writing it's down to 55.01% -- so it's been cut in half (ish) in less than four months. The 52 wk range in IV30™ is [39.57%, 119.06%], putting the current level in the 19th percentile (annual). In terms of the vol comps, we can see:

IV30™: 55.01%
HV20™: 71.69%
HV180™: 93.34%

So, IV30™ is depressed relative to the short-term and long-term realized movement of the stock as well as it's own annual history.

Let's turn to the Skew Tab, below.

This is an interesting chart. While the skew shape(s) look normal, check out how depressed the front is to the back months. Granted that the next earnings release for LEAP should be in the May cycle (and not in Apr), but still... That ATM vol is the lowest single vol across all three front expiries and all strikes. An upside skew in LEAP isn't terribly unusual, but given the implied is so low, I would have expected the opposite. Shows what I know...

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

Looking across the top we can see 54.63%, 63.45% and 63.34% for the Apr, May and Jul expiries, respectively.

This is trade analysis, not a recommendation.

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