Monday, February 17, 2014

Cray (CRAY) - Stock Breaches Decade High on Earnings; Did Someone Know Ahead of Time? How to Make 2,000% in a Week.

CRAY closed Friday trading at $41.66, up huge (39%) off of earnings. The Symbol Summary is included below.

Provided by Livevol

This is an order flow note, specifically, order flow which looks to me to be front running a huge stock move up off of earnings.  The evidence is circumstantial, but oh my, what circumstances indeed.

This is similar in some ways to the prior post I published on suspicious magicJack (CALL)  option trading a few days ago.  That one was much more elegant whereas this note on CRAY is rather brutish.  You can read the CALL post by clicking on the title below.

magicjack (CALL) - The Anatomy of a Cheater; A Beautiful Inside Trade?

Let's start simple with CRAY.  Charts Tab (two-years) is included below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

So what?... The stock popped 39% to $41.66 -- a price not seen in over a decade.

And now, the evidence of an improprietous trade:

1.  The average option volume for CRAY is 205 calls traded per day.  A snippet of the Stats Tab is included below.

Provided by Livevol

2. On 2-7-2014, CRAY trade 807 calls, or ~4x it's daily average volume.

3. 781 of those 807 calls were traded in the February out-of-the-money (OTM) calls.

4. With the stock trading $29.95 on 2-7-2014, let's turn to the Time & Sales Tab first for the Feb 35 calls, keeping in mind that $35 would also have been a decade high.

Provided by Livevol

We can see that 579 Feb 35 calls were purchased, but not only that... Look at the execution prices.  Someone paid $0.35 for options that had an NBBO of $0.05 x $0.35.  I mean, they didn't even try to bid $0.25 or $0.30, they just lifted the offer.

And...look at the time of the trades.  All of them are at 12:27pm and 39 seconds EST.  Yup, someone just swooped in and paid 7x the bid price all at once for 250% the average daily volume in one second.


5. Now let's turn to the Time & Sales Tab on the same day for the Feb 30 calls.

Provided by Livevol

Look at the largest trade (a 200 lot).  At 12:27pm and 0 seconds EST, 200 Feb 30 calls traded on the bid for $1.60.  So a sale right?... No, wrong.  That was a purchase, and here's how we can see:

The level II quotes at the time of that 200 lot trade are included below.

Provided by Livevol

Note that the NBBO was $1.45x$1.65 and someone went $1.60 bid.  That bid was hit, but that is buyer initiated.

So now we see 779 Feb OTM calls trading within 39 seconds of each other totaling nearly 400% of daily average volume.

And then, what do you know... One week later, CRAY breaches a decade high stock price with blowout earnings.  Here's the Options Tab from the close on Friday.

Provided by Livevol

So the Feb 30 calls purchased for $1.60 are now worth $11.66 (parity) more than 7-fold the original purchase price.

And the Feb 35 calls purchased for $0.35 are now worth $6.70 or ~20-fold the original investment.

Yup, a 2,000% rise which required the stock breach a decade high in stock price within a week of purchase on more than 4x total daily average volume.

6. And the mitigating factor... Well, there isn't one.  Look at the Options Tab again. I have highlighted in red the open interest (OI) in the other Feb calls.  Yeah, a total of 2 (two) call contracts were held other than the Feb 30 and 35 calls.

Lucky bet?... maybe.

A cheater?... probably.

This is trade analysis, not a recommendation.

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