Wednesday, April 4, 2012

Fushi International (FSIN) - Vol Explodes, Stock Drops, News is... Silent on Chinese Small Cap

FSIN is trading $7.01, down 2.0% with IV30™ up 9.4% as of ~10:15am EST. The LIVEVOL® Pro Summary is below.


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Fushi Copperweld, Inc. (Fushi) is a producer of bimetallic wire products, principally copper-clad aluminum (CCA) and copper-clad steel (CCS) products. CCA and CCS conductors are generally used as a substitute for solid copper conductors in applications for which either cost savings or specific electrical or physical attributes are necessary.

The company’s contact information reads an HQ location in Beijing, China.

This is a vol and stock movement note of epic proportions… Ok, I dunno if it’s epic but I really love that word. What I can say is that the vol has exploded from the 30% range to now over 135% in a few weeks, while the stock has seen prices near $8.50 and $5.50 in the same time period with what appears to be, no news.

Let’s start with the Charts Tab (six months), below.

The stock drop looks worse than it actually is in one way – that gap down yesterday to $5.76 was temporary, the stock closed at $7.15. On the vol side, it’s hard to miss the incredible rise of late. The HV180™ is 50.46% and the HV20™ is 33.51% -- so, in English, the stock movement is in the ~43% range taking an average of short-term and long-term historical realized vol. Clearly, the implied reflects a massive gain in risk premium of late.

Let’s turn to the Skew Tab to examine the month-to-month and line-by-line vols.

First, we can see a consistent and normal skew shape across the front three expiries – the option market does not reflect any kind of upside bias, or single strike vol irregularities. Second, we can see a clear monotonic vol increase from the back to the front across the three expiries. The risk reflected by the options is highest in the Apr expiry.

It’s noteworthy that the last two earnings in calendar Q2 were 5-4-2010 and 5-4-2011, which would put the earnings cycle this year in the May options and outside of the Apr options. So… that Apr vol priced above May is even more indicative of an expectation of risk in the near-term (Apr over May).

Let’s turn to the Options Tab, for completeness.

I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. We can put some numbers to the vol diff by expiry. Apr, May, Jun and Sep are priced to 166.95%, 127.85%, 113.18% and 87.30%, respectively. Again, note that earnings are likely in May.

Here’s what worries me about this stock.

1.Small cap Chinese company stocks scare me. Transparency is low creating rather large information disparity between those that know and those that don’t
2. Whatever this news is, it clearly has more impact on enterprise value than an earnings release if you trust the option market. So, in English, owning May vs Apr isn't necessarily a good do.
3. What the hell is going on with company anyway?... Why did it go to $5.75 yesterday and then bounce back 23%? Why is vol up 250% in less than a month?

This is trade analysis, not a recommendation.

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