Maxim Integrated Products (MXIM) - Elevated Vol; Depressed Earnings Vol Phenomenon

MXIM is trading $24.84, up 3.1% with IV30™ down 3.0%. The LIVEVOL® Pro Summary is below.



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Maxim Integrated Products, Inc. (Maxim) designs, develops, manufactures and markets a range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits, for a large number of customers in diverse geographical locations.

This company has a similar vol term structure phenomenon as the earlier post on SAP. You can read that blog here: SAP (SAP) - Elevated Vol, Depressed Earnings Vol Phenomenon

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



The stock price is at around the same levels as late Jun/early Jul and has popped the last two days with the market rebound. The implied is trading above both the short-term and log-term historical realized vols, or in English, by that comp, vol is elevated. Specifically:

IV30™: 40.85
HV20: 35.64
HV180: 36.16

Let's turn to the Skew Tab, and uncover the same vol phenomenon as in SAP.



The front month ATM is actually just below the back, but to the downside puts we can see elevated vol in Oct to Nov. The last two years SAP has had earnings on 10-28-2009 and 10-27-2010. With an Oct 22 expiration, a reasonable bet is that SAP will have earnings after the Oct options cycle and in Nov.

Allow myself to introduce myself... Austin Powers... anybody? No?.. Ok... Here's a line from the last blog:
"This is a great example of a phenomenon that’s starting to become common in companies with earnings due out in the Nov cycle [but have elevated vol in Oct] due to the "fear factor" in Oct and the recent wild swings."  Yeah, what he said.. Or, what I said... Whatever...

Let's finally look to the Options Tab for completeness.



Possible Trades to Analyze
A bunch of interesting positions to analyze sort of pop out at me in this one (and SAP). They all surround selling Oct and buying Nov in the downside. Straight calendars, ratio calendars (selling more), and diagonal calendars all purchase the Nov earnings vol and sell the elevated non-earnings Oct vol for more (more vol, not more in $).

NB: The 52 wk range for MXIM is [$17.02, $27.90].

This is trade analysis, not a recommendation.

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SAP (SAP) - Elevated Vol, Depressed Earnings Vol Phenomenon

SAP is trading $51.60, up 3.4% with IV30™ down 6.1% as of ~11:15am EST. The LIVEVOL® Pro Summary is included below.



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SAP AG (SAP) is engaged in enterprise applications in terms of software and software-related service revenue. The Company’s core business is selling licenses for software solutions and related services to deliver a range of choices fitting the varying functional needs of its customers.

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



I’ve highlighted the recent stock pop, which seems to simply be the systematic risk – up with the market. On the vol side we can see that the implied is trading above both the short-term and long-term historical realized vols. Specifically:

IV30™: 44.35
HV20: 35.64
HV180: 36.16

I see a recent post from Briefing (http://www.briefing.com/) regarding the next earnings release: “Next earnings release: Oct 26 before market, confirmed. Capital IQ estimate: 0.60”

More on that in a sec… Let’s turn to the Skew Tab to examine the month-to-month and line-by-line vols.



This is a great example of a phenomenon that’s starting to become common in companies with earnings due out in the Nov cycle due to the "fear factor" in Oct and the recent wild swings. The front month vol and second month vols are nearly identical, but the downside skew is more bid in the front. In English, the opportunity to own earnings vol for less than non-earnings vol to the downside puts is possible. Tricky…

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



I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. I will say that given that the vol is elevated in SAP, being a bigger seller than buyer might be an interesting vol position to examine. But, the vol diff spread between the earnings and non-earnings months (i.e. Nov and Oct, respectively) is also interesting. Note that the 52 wk range in SAP is [$46.24, $67.71], so perhaps that can act as a guide for any downside positions.

This is trade analysis, not a recommendation.

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Banco Santander (STD) - Elevated Vol; Downside Skew Backwards to Earnings

STD is trading $7.94, up small with IV30™ down 4.3%. The LIVEVOL® Pro Summary is included below.



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Banco Santander, S.A. (Santander) is a financial group operating principally in Spain, the United Kingdom, Portugal, other European countries, Brazil and other Latin American countries and the United States, offering a range of financial products.

I found this stock using the real-time custom scan that searches for high vols relative to the short-term and long-term historical realized vol, just like GME earlier today. This one includes an earnings date in a back month for a little "extra" interesting trade to examine.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20 LTE 10
HV180 - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20) and the long term trend in stock movement (HV180). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching.

The STD 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).



We can see the stock price has catapulted down since early August as the IV30™ has popped. Over the last few trading days, though, the stock has found a quiet time but the implied has remained substantially elevated. This phenomenon has created a large vol diff between the historical and implied vols. Specifically:

IV30™: 80.73
HV20: 55.67
HV180: 47.29

Let's turn to the Skew Tab, below.



We can see a relatively normal looking skew shape, with the front month slightly elevated to the back. The small diff opens up as we look to the downside puts. What's interesting is that STD usually has earnings on or about 10-27. This year the investor relations website reads that this year, again, on 10-27-2011: "3Q11 Results presentation." If we take that as an earnings announcement, then the Nov options have the earnings cycle but are priced to lower vol than Oct.

Taken a step further, this is a bank with a stock price down 33% in two months (ish) with earnings due out in a month and the front month has more expensive vol than the back. Hmmm...

Let's look to the Options Tab (below).



Possible Trades to Analyze
1. Calendar
There aren't any obvious skew kinks here and really too many strikes to analyze here either. The trade that caught my eye in terms of one worth analyzing is either the Oct/Nov 7 or 6 put spreads. The 6 strike sells ~12 vol points higher than it purchases while owning earnings. The 7 strike is more like a 3 point vol diff, but still, interesting...

This is trade analysis, not a recommendation.

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GameStop (GME) - Elevated Vol

GME is trading $22.89, up 1.7% with IV30™ down 0.6%. The LIVEVOL® Pro Summary is included below.



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GameStop Corp. (GameStop) is a multichannel retailer of video game products and personal computer (PC) entertainment software.

I found this stock using the real-time custom scan that searches for high vols relative to the short-term and long-term historical realized vol.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20 LTE 10
HV180 - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20) and the long term trend in stock movement (HV180). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching.

The GME 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).





On the stock side we can see on both of the last two earnings releases, the stock dipped on that trading day but ultimately rose after. On the vol side we can see that the implied has elevated and held as the realized vol (short-term) has decreased. It's that recent divergence that has opened the vol diff. Specifically:

IV30™: 48.41
HV20: 36.74
HV180: 31.11

Let's turn tot he Skew Tab, below.



The skew shape looks normal. The Nov options are elevated to Oct likely b/c earnings may be due out at the end of the Nov cycle. There aren't any obvious kinks in the front two months to trade.

Let's look to the Options Tab (below) for completeness.




Possible Trades to Analyze
1. Vol sales:
a) The Oct 23 straddle is priced at ~46.5 vol or ~$2.35. Covering that sale with the Oct 19/25 strangle yields a ~$1.70 credit or a MaxGain:MaxLoss of 1.3:1

b) Similar approaches with further OTM strangles are interesting to examine, maybe even including as far out as a sale of the Oct 19/25 strangle covered with Oct 18/26 strangle.

c) Going 1x2 (owning meat and selling 2 wings) is also an interesting position to examine, particularly to the downside given that the GME 52 wk range is [$17.93, $28.66].

2. Vol purchases
A volatile market in a retail name ahead of potential pre-holiday forecasts -- I dunno, maybe less than 50 vol is a purchase?...

This is trade analysis, not a recommendation.

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SPY - Falling Market, Popping Vol Opens Downside Skew

SPY is trading $113.14, down 3.0% with IV30™ up 10.2% as of ~11:20am EST. The LIVEVOL® Pro Summary is below.



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With the market catapulting down the last two days, vol has spiked 24%. And this is the S&P 500, not a bio-tech stock or a Greek bank (sorry for the cheap shot Greece). It’s that vol spike that has caught my attention. Let’s look to the Charts Tab, below. The top portion is the stock price, the bottom is the vol (IV30™- red vs HV20 - blue vs HV180 - pink).



I’ve highlighted the price drop and vol spike of late. It’s incredible how volatile SPY has been when looking at the stock chart. The HV20 hit as high as 49.69 and HV10 hit as high as 61.77. In English, at the peak of late, over a ten trading day period (two weeks),the SPY was moving at an annualized realized vol of over 60%. Whoa… Makes IV30™ of 35 feel cheap? Nah…

Let’s turn to the Skew Tab.



When the market goes down big, we can often find a vol difference that opens up between the front expiration and the back with respect to the downside puts. The threat (read: fear) of a cataclysmic decline pushes that tail risk up and therefore the front expiration downside puts tend to be sticky in price. That stickiness can only be expressed as increased vol. We are seeing that now – check out the vol diff between the Sep 23 (Weekly) puts and the Oct monthlies.

With a vol diff opening up, a short-term trade to sell it and cover with the back becomes a reasonable trade to assess. Let’s turn to the Options Tab for completeness.



I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. I do like the idea of this type of trade because of the vol diff. Having said that, I don’t like the trade for another reason; a simple one really. The fear of the “cataclysm” isn’t subsiding. If anything, it feels like the market is bracing for it as VIX has remained above 30 since 8-4-2011, even during times of market rebound. That means bad news may be digested in the long-run quite well, but in the short-run, it might be swallowed whole and push the markets down. And since we’re dealing with options that expire in one and half days, we’re definitely looking at the short-run.

This is trade analysis, not a recommendation.

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James River Coal (JRCC) - OTM Call Buying Explodes

JRCC closed yesterday at $7.74, down 14.6% with IV30™ up 10.6%. The LIVEVOL® Pro Summary is below.



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James River Coal Company mines, processes and sells bituminous, steam- and industrial-grade coal through six operating subsidiaries (mining complexes) located throughout eastern Kentucky and in southern Indiana.

With the market down size yesterday and again today (at least on open), here's an interesting order flow in the opposite direction. The company traded just under 16,000 contracts on total daily average option volume of just 1,298. Calls traded on an 11.5:1 ratio to puts with the action in the Oct 10 and Nov 9 calls -- substantially purchases on tiny OI. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the calls in both months are mostly opening (compare OI to trade size). The color in the Oct 10 calls I got was:
"JRCC Oct 10 Calls ppr paid .25 on 7k; xx-ed"

If you look at the largest trades snap, everything is Oct 10 or Nov 9 calls, with the Nov 9 all trading on the offer on $0.25 wide markets with AutoExec. Someone just swooped in and lifted the calls. When looking down the entire option chain for JRCC, I don't see any OI larger than 900, so both of these trades are huge. Today the OI is 7,405 and 3,884 in the Oct 10 and Nov 9 calls, respectively.



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



What's odd is that the skew doesn't really show a change in shape. I would have expected the upside to be bid in both months.

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).



We can see the stock has been falling hard of late. This was a ~$22 stock in late July and now it's trading below $7.50 as of this writing. On the vol side, IV30™ is up to 81.86 (up another 7.4%) as of this writing.

Possible Trades to Analyze
I dunno, but... that's a lot of call buying in a stock down 75%.

This is trade analysis, not a recommendation.

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Netflix (NFLX) - Is NFLX Going Away?... Or is it the 800-pound Gorilla? Option Market Reflects... Both?

NFLX is trading $127.33, down 2.1% with IV30™ down 3.1%. The LIVEVOL® Pro Summary is below.



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Netflix, Inc. (Netflix) is an Internet subscription service streaming television shows and movies... duh, Netflix!

Let's get right into it. The news is simple with regard to the stock, it's down a lot. 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).



The company peaked at $304.79 on 7-13-2011. As of this writing, it's down 58% in two months. Perhaps more dramatically, since closing at $208.71 on 9-14-2011 (a week ago), the stock is down ~40%. In those same two time periods IV30™ is up 74% and 61% respectively. More to the point, check out the IV30™ levels on these dates:

7-13-2011: 49.32
9-14-2011: 53.22
9-21-2011: 85.59 (today)

So what?... The stock drop from 7-13 to 9-14 of 31% was met with relative calm in terms of vol (up 8%). While the valuation of the company dropped, the risk (vol) associated with that valuation (stock price) did not increase very much. But, over the last week, the valuation has dropped 39% and the vol has exploded 61%...

Ok, ok. In English, while the news seems to finally be out, nothing is settled about the future of this company -- even the near term future (and yes, for those of you that read the Journal, I did just quote myself... sup?).

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



For those of you new to NFLX skew, that parabolic shape in the front months is actually normal. The striking thing here, really, is that the skew looks normal (for NFLX). There isn't a bias to one side or the other, vol is just massively higher. That vol increase has made some of the downside puts almost... unbelievable...

Let's turn to the Options Tab, below.



I actually didn't include it in this snapshot, but the Jan'12 35 puts are priced at $0.65 x $0.68 with stock now printing $126.00. That's ~124 vol. Whoa...

All in all, the future of NFLX is in question, the valuation of this now "two part" company is in question, and the possibilities of much lower or much higher are both reflected in the options market. However, the downside is still priced to more risk as we move further out.

While there is a parabolic skew shape in the front, don't confuse that with the longer-term trend. Using $126 as the center, the 65 strike puts in Jan'12 are priced to 124 vol while the 190 strike calls are priced to 72 vol.

I hate to say this about a company whose customer service has been absolutely stellar, but... Is NFLX the next AOL? A trail blazer that didn't quite get it right and will be run over by newer technologies... Or is it the 800-pound gorilla that will prevail?...

Possible Trades to Analyze
As with all panics (founded or otherwise), the question is, what happens when calmer heads prevail? NFLX vol will eventually drop, but the stock might be $100 or more away from the current price when it does, making essentially any delta neutch vol sale a loser.

Near term sales (like the weeklies) are pure gamma plays -- but, the juice is rich so that's not necessarily a bad move, it's just a risky one. The ATM (125 strike) weekly straddle is worth ~$10 with $2.33 in parity. Considering the stock has moved $80 in seven calendar days, and just as of this writing (since the snapshots) has moved more than $4 on the day, maybe that's cheap?... Then again, 107 vol... doesn't sound cheap.

One position that seems interesting is owning that 125 straddle in the weeklies. For the bold, selling on a bigger ratio some wings with more than $10 difference in strikes might be... bold...

Longer term, man that vega feels rich, but really, is NFLX gonna settle as a $125 stock?  Would you bet for or against that?

This is trade analysis, not a recommendation.

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Lender Processing Service (LPS) - Elevated Vol and Earnings Date Ambiguity

LPS is trading $15.50, down 3.3% with IV30™ up 7.0% as of ~11:10am EST. The LIVEVOL® Pro Summary is below.



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Lender Processing Services, Inc. (LPS) is a provider of integrated technology and services to the mortgage lending industry, with mortgage processing and default management services in the United States.

The company caught my eye for two reasons, today:
(1) The implied vol is elevated relative to both the short-term and long-term historical realized vols.
(2) The vol in Nov is below Oct, but Nov likely has the earnings release which likely falls just after the Oct option cycle expires.

Let’s start with the Charts Tab (6 months). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



We can see the stock has plummeted over the last six months, falling from a high of $32.79 on 4-7-2011 to now $15.50. That’s a 53% decline. The 52 wk low is $15.10 and that level was reached just a few days ago, on 9-12-2011.

On the vol side we can see that the implied trades above both of the historical measures almost all the time. As of now that vol diff has opened up as the HV20 is declining and IV30™ has popped today. Specifically:

IV30™: 69.77
HV20: 54.20
HV180: 39.48

The recent stock movement has been even more muted than the last twenty trading days, with an HV10 of 45.67.

Let’s turn to the Skew Tab.



The shape is similar for both of the front two months and it’s generally “normal.” What is interesting is that Oct is elevated (slightly) to Nov. The last two earnings releases at or around this date for LPS were 10-22-2009 and 10-28-2010. Last year the 10-28 release was preceded by a 7-22 release. This year LPS had earnings on 7-25, so it’s a reasonable bet (but not a sure thing) that earnings this year will fall after the 10-22 Oct options cycle.

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



I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. But, I will say that the elevated Oct vol relative to Nov is compelling if in fact the earnings report is after Oct expo. The vol diff with Oct GTE Nov opens up to the downside puts. I have a call in to the LPS investor relations dept., but no response back yet (I left a voicemail).

This is trade analysis, not a recommendation.

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MBIA (MBI) - Elevated Vol, Ripping Stock, Earnings Vol and Skew Comps

MBI is trading $8.77, up 4.2% with IV30™ down 2.3%. The LIVEVOL® Pro Summary is below.



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MBIA Inc. (MBIA) together with its subsidiaries, operates the financial guarantee insurance business.

The stock has been ripping of late, up from a low of $5.99 on 8-22-2011 to now nearly $9, less than a month later; that's 46% (to $8.77). Let's turn to the Charts Tab (6 months) below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



I've highlighted two phenomena:
(1) The stock rise
(2) The vol levels (comps).

We can see that the IV30™ is substantially elevated to the HV20 and HV180, although the IV30™ has dipped with the stock price move up.

Let's turn to the Skew Tab.



We can see a rather pretty skew shape -- normal in all respects. The Nov vol is above Oct due to earnings in the Nov cycle. I did highlight the 6 strike -- the vol in Oct is right around the same level as Nov in both the 6 and 5 strikes. Keep in mind, it's Nov that has the earnings cycle (I think). Hmm...

Finally, the Options Tab is included below for completeness.



Possible Trades to Analyze
Selling that Oct downside vol given the recent run up and still elevated vol to HV measures seems reasonable. Covering the short vol in Oct with similarly priced earnings vol in Nov is also a possibility.

Taken a step further, selling the Oct vol and covering with Nov on a diagonal lowers the premium paid (though it does risk strike price difference). An example could be owning the Nov 5 puts against the Oct 6 puts... Of course, a catapulting stock into the small single digits on bad news makes that rather... ugly...

This is trade analysis, not a recommendation.

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Rubicon Technology (RBCN) - Elevated Vol Trend and Offered Puts

RBCN is trading $12.14, down 0.5% with IV30™ at 79.75 as of ~11:30am EST. The LIVEVOL® Pro Summary is below.



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Rubicon Technology, Inc. (Rubicon) is an electronic materials provider, which develops, manufactures and sells monocrystalline sapphire and other crystalline products for light-emitting diodes (LEDs), radio frequency integrated circuits (RFICs), blue laser diodes, optoelectronics and other optical applications.

The vol in this company is elevated and that’s what caught my attention. I found it on the elevated vol scan.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20 LTE 10
HV180 - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20) and the long term trend in stock movement (HV180). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching.

The RBCN 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).



A couple of things to note here:

1. The stock has fallen from as high as $29.79 on 4-27-2011 to now below teenager status, trading at $12.14. That’s a 59% drop in less than 5 months.

2. The implied vol has traded above the short-term realized vol essentially everyday for the last six months.

As of right now, the IV30™ is trading above both the HV20 and the HV180. Specifically:

IV30™: 79.75
HV20: 68.65
HV180: 57.09

It’s this vol difference that caught my eye. Let’s turn to the Skew Tab to examine the month-to-month and line-by-line vol comps.



We can see that Nov is priced above Oct (in terms of vol). Earnings are due out in early Nov, so the overall vol diff makes sense. Another point of interest, check out the vol in the Oct 10 puts. That depression is based on a $0.35 offer 289x.

Finally, let’s turn to the Options Tab, and make a trade.



I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. But, that elevated IV30™ to historical trend is compelling as is that offer in the Oct 10 puts as a potential cover to a vol sale.

This is trade analysis, not a recommendation.

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