Monday, September 24, 2012

MIPS Technologies (MIPS) - Dipping Elevated Vol; Upside Skew Reverses with Earnings Month

MIPS is trading $7.31, down small with IV30™ down 9.8%. The LIVEVOL® Pro Summary is below.


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MIPS Technologies, Inc. (MIPS), incorporated in June 1992, is a provider of industry-standard processor architectures and cores for digital home, networking and mobile applications.

This is a vol note -- specifically dipping elevated vol. Let's start with the 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).

On the stock side we can see a rather bumpy ride, though I do note the vertical axis scale -- the increments are in $0.20 pieces. Over the last month, MIPS has risen from $6.32 to now just under $1 higher -- so 15.7% higher. But, the real issue at play is the vol.

We can see that for the last several months, MIPS implied has traded above both the short-term and long-term historical vols. What I note now, however, is how that normally elevated vol is dipping. In English, that spread of implied to historical is shrinking as the stock has made its nice run up in Sep. Then there's the issue of earnings -- which are due out after Oct expo (so in Nov) -- that's a projection, not a fact.

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

The red curve represents Oct, while yellow is Nov. We can see an awesome upside skew shape to both of the font months - the option market reflects greater upside risk (potential) than downside risk in the near and medium term options. Even more interesting is that the Oct upside calls are priced to higher vol than the Nov OTM options while the next earnings release is due out in Nov. So, in English, while Nov has the embedded vol event, the Oct OTM options are priced higher (in terms of vol). All of this is occurring as the implied is dipping -- hmmm....

Finally, let's turn to the Options Tab for completeness.

Across the top we can see that Oct vol is priced to 73.2% while Nov is priced to 75.88%. But, looking more closely at the chain, we can see that the Oct/Nov 9 call spread (for example), shows a 6 point vol diff -- Oct is priced above Nov. In English, we can put a real value on the vol diff to the upside skew we observed in the Skew Tab. Very cool... And... note worth, IMHO.

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