Monday, September 9, 2013

Fusion-IO (FIO) - Rival Takeover News; Stock Pops, Volatility Pops; Skew Bends to Upside

FIO is trading $13.16, up 21.55% with IV30™ exploding up 29.4%. The LIVEVOL® Pro Summary is below.

Fusion-io Inc (Fusion) is a provider of datacenter solutions that accelerate databases, virtualization, cloud computing, big data, and the applications that help drive business from the smallest e-tailers to some of the largest data centers, social media leaders, and Fortune Global 500 businesses.

I found this stock using a real-time custom scan. This one hunts for vol gainers on the day. But I also note, this is a stock story, with a long awaited rally in a stock has seen a cataclysmic decline.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percent Change GTE 10
Average Option Volume GTE 1,200
IV30™ Change GTE 7

The two-year FIO 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).

Let’s focus on the stock side, first. Look how FIO has fallen from a ~$41 stock in Nov 2011 to $10.83 as of Friday’s close (before the pop today). We’re talkin’ ~75% loss in equity value in less than two years. Then, today happened, pushing the stock up more than 20%, but still well below the $40, $30, or even $20 range.

So what’s the news? Well, Western Digital bought Virident and FIO is a main rival to Virident. With a stock down 70% (or whatever), yeah, when a rival is bought out, you better believe it’s good news.

Let’s turn to the two-year IV30™ chart in isolation, below.

Interestingly, even as FIO stock has imploded, the implied has generally reached the same peaks in each earnings cycle (see the blue “E” icons). It would not have been unusual if the volatility would have kept creeping up into each earnings cycle as the results continued to disappoint. But the volatility didn’t… The news today however, yeah, that’s new information with an unknown outcome and that equals vol.

The volatility, however, has a directional bias. Let’s turn to the Skew Tabs from Friday and today.

Checkout how Sep vol is below Oct as of Friday.

And now… look at the one-sided volatility in Sep (the red curve). In English, the risk reflected in the Sep options is heavy to the upside... That’s normal given a takeover frenzy, but will likely die down soon without more “new” news.

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

Across the top we can see the monthly vols are priced to 65.87% to 59.26% for Sep and Oct. Note that Sep vol is up 20.9 vol points (the number in the parenthesis) while Oct is up 9.9 vol points. This is a bit of a frenzy in my opinion. But then again, FIO is down so huge and their rival was just bought out… How attractive is FIO stock right now to a potential takeout? The option market says, quite attractive.

This is trade analysis, not a recommendation.

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