INFN - Call Buying, Skew Discovery Provides Possible Trade

Discussion in 'Options' started by livevol_ophir, Sep 21, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    INFN is trading $11.70, down 2.3% with IV30&#8482 up 11.6%.

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    INFN is a provider of optical networking systems based on Photonic Integration technology.

    The company has traded over 9,700 options on total daily average option volume of just 1,248. All but 254 contracts have been calls yielding a 37:1 call : put ratio. The action has been in the Oct 12.5 calls were over 6,200 contracts have traded with substantially buying interest. The Stats Tab and Day's biggest trades snapshots are included (<a href="">in the article</a>).

    The Options Tab (<a href="">in the article</a>) illustrates that the calls are mostly opening (compare OI to trade size). You can also see at the top that Oct vol is up a full 8 points, or 16% while Nov is up just 1.1 points and Jan'11 is up just 0.8 vol points.

    The Skew Tab snap (<a href="">in the article</a>) illustrates the vols by strike by month.

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    The buying interest in Oct has pushed the entire month above Nov and has created a noticeable kink upward in the OTM calls. Though the 12.5 calls are a bit higher than "normal," it's really the 14 and 15 calls that exhibit a pronounced vol push.

    Finally, the Charts Tab (6 months) is below (<a href="">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue vs HV180&#8482 - pink). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    We can see a few things right off the bat:
    1) The stock is in the midst of a pop. Going from $8.28 a few weeks ago to nearly $12 yesterday.
    2) The stock gapped up on earnings in late July going from $6.99 to $9.14 (31%) in one day.
    3) The IV30&#8482 has just now risen to the longer term realized (HV180&#8482 is 58).

    <b>Possible Trades to Analyze</b>
    Oct 12.5/14 call spread: Buying the calls that are getting piled on and selling the elevated skew. Total debit of $0.30 if possible. A Nov 12/Oct 14 call spread pays ~$0.85 and buys the cheaper Nov vol (53) and sells the elevated Oct skew (63) while potentially getting earnings in Nov.

    This is trade analysis, not a recommendation.

    Details, trades, prices vols, skews, charts here:

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