RAX - New High, Vol Pop, Abrupt Moves into Earnings

Discussion in 'Options' started by livevol_ophir, Nov 2, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    RAX is trading $26.37, up 4.0% with IV30™ up 10.8%. The <a href="http://www.livevol.com/">LIVEVOL™ Pro Summary</a> is <a href="http://livevol.blogspot.com/2010/11/rax.html">in the article</a>.

    <img src="http://www.livevolpro.com/help/images/blog/rax_summary.gif" />

    <a href="http://www.livevolpro.com/help/free_trial.html"><img src="http://www.livevolpro.com/help/images/blog/lvp_trial_ad.gif" height="200" /></a>

    For a limited time we are offering a FREE real-time trial to Livevol Pro™ for non-professional traders. You can get your trial by following the directions here: <b><a href="http://www.livevolpro.com/help/free_trial.html">Click for Free Trial Offer</a></b>

    The stock blew through the 52 wk high of $26.50 this morning, touching as high as $27.94. At around 12pm EST, the stock suddenly gapped down and vol spiked, then returned to normalcy though the price has not fully recovered. The Livevol Pro Tick Chart is included <a href="http://livevol.blogspot.com/2010/11/rax.html">in the article</a> (stock is on top, vol on the bottom). Note that earnings are in six days (11-8-2010).

    Here's the news from Motley Fool:
    There are twin engines behind this move: speculation that Dell (Nasdaq: DELL) might choose to buy Rackspace to expand its cloud-computing acumen, and a halo effect around strong results from rival Terremark Worldwide (Nasdaq: TMRK). Rackspace has now returned 43% over the last three months to its shareholders, or 52% in six months.
    Source: <a href="http://www.fool.com/investing/general/2010/11/02/rackspace-shares-popped-what-you-need-to-know.aspx">Click Here for Full Article</a>

    The company has traded over 22,000 options on total daily average option volume of just 5,128. Nov is active with the OTM calls and puts trading, though calls are trading about 2x as much as puts. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/11/rax.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/11/rax.html">in the article</a>) illustrates that the calls are mostly opening (compare OI to trade size) while the puts are ambiguous. I have lost the ability to read order flow some how (my guess is a zombie ate my brain cuz I left the bedroom window open) - the calls really do look ambiguous, maybe two sided, not sure. Note also that Dec vol is up nearly 8 points while Nov is up just 4. With vol up, it feels like more premium buying than selling.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/11/rax.html">in the article</a>) illustrates the vols by strike by month.

    The back months are pretty flat, but Nov looks kinda normal (ish) giving us little clue to the order flow if it is one-sided.

    Finally, the Charts Tab (6 months) is <a href="http://livevol.blogspot.com/2010/11/rax.html">in the article</a>. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

    <img src="http://www.livevolpro.com/help/images/blog/rax_charts.gif" width="600" />

    We can see the stock is on a recent rise from $22 (ish) up to over $26 in the last three weeks. Just recently the IV30™ has jumped past both HV20™ (short-term realized vol) and HV180™ (long-term realized vol). The IV30™ is also now passed the peak from the last earnings cycle.

    This is trade analysis, not a recommendation.

    Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

    Details, trades, prices, vols, skews, charts here:
    <a href="http://livevol.blogspot.com/2010/11/rax.html">http://livevol.blogspot.com/2010/11/rax.html</a>

    Legal Stuff:
    <a href="http://www.livevolpro.com/help/disclaimer_legal.html">http://www.livevolpro.com/help/disclaimer_legal.html</a>