Thursday, April 26, 2012

Teradyne (TER) - Popping Stock, Dropping Vol

TER is trading $17.44, up 3.6% with IV30™ down 9.4%. The LIVEVOL® Pro Summary is below.


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Teradyne, Inc. (Teradyne) is a global supplier of automatic test equipment. The Company designs, develops, manufactures and sells automatic test systems and solutions used to test complex electronics in the consumer electronics, automotive, computing, telecommunications, wireless, and aerospace and defense industries.

This is a vol note with some order flow and a move off of earnings. TER has traded over 13,000 contracts on total daily average option volume of just 1,301. Calls have traded on a nearly 5:1 ratio as the stock continues to move higher off of earnings. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action. The May 17, Jun 17 and Jun 18 calls are mostly opening (compare OI to trade size). All three of those lines look like substantially purchases.

The Skew Tab snap (below) illustrates the vols by strike by month.

While there is a vol story I want to get to, it's not in the skew. All looks quite normal here, though I do note that the front month is elevated to the back months even though the earnings release and earnings move are over.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

So here we go. We can see on the stock side how the underlying has popped into and after earnings (which were announced yesterday AMC). On 4-24-2012, this was a $16.03 stock. As of this writing, the stock is up 8.80% from then -- a nice move in a 35% vol stock. Turning to the vol portion we can see the vol crush out of earnings and even the few days before, oddly. On 4-23-2012 the IV30™ was 42.13% and dipped to 39.55% as earnings approached. Now the vol is down to 35.84%, or in total, a ~15% drop in vol.

The interesting part about this company is the actual vol level as of right now. The 52 wk range is [31.33%, 66.98%], putting the current level in the 12th percentile (annual). For a firm that just rose nearly 9% into (and out of) earnings, that 12th percentile feels kinda low. But, taken a step further, note that the back months are actually less expensive than the front (in vol). So, for example, Jul vol is in the 34% range which would be more like the 10th percentile in IV30™. One quick caveat, this firm normally releases earnings in late Jul -- after Jul expiration. It will be interesting to see if the call buyers (vol buyers) are right or if this name will in fact see an annual low in vol and the stock will sit still.

This is trade analysis, not a recommendation.

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