RDWR - Stock Explodes Mid-day on Rumors

Discussion in 'Options' started by livevol_ophir, Sep 14, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    RDWR is trading $38.24, up 37.2% with IV30&#8482 up 76.2%.

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/TI--pv2FmFI/AAAAAAAAEvU/AZuqX4X6pso/s1600/rdwr_summary.gif">

    At around 1:05pm EST, the stock ripped up on apparently no news. The Tick Chart is included (<a href="http://livevol.blogspot.com/2010/09/rdwr.html">in the article</a>). Note how the front month vol exploded, and the back months were more muted.

    In terms of fishyness... Yes...

    Below are the trades in the Sep 25 calls. Note the first few are before the spike. Some one was paying $3.40 and $3.70 on $0.45 and $0.30 wide markets 400x in a stock that trades just 400 calls a day. All that was done in 11 minutes.

    <img src="http://2.bp.blogspot.com/_hMry1m7UF10/TI_DIRrzcuI/AAAAAAAAEv8/gwhX8_wXLxc/s1600/rdwr_trades_fishy.gif">

    Also interesting, looking at just trades that are 10 lots or larger, from 9:42am to 11:56am, there were zero trades. Then, all of a sudden, an hour before "the move," the call buying came in. Those trades are included (<a href="http://livevol.blogspot.com/2010/09/rdwr.html">in the article</a>). This accounted for over 500 call purchases.

    The company has traded over 12,000 options on total daily average option volume of just 653. Calls are trading on a 5:1 ratio to puts. Other than those trades above, the rest feel like a reaction trade. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/09/rdwr.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/09/rdwr.html">in the article</a>) illustrates that the Sep 35 calls have the bulk of the volume on 0 (zero) OI. These were all opening today.

    Note the vols. Sep is up to 215 (up 160 points), Oct is up to 86 (up 37 points) while Dec is 56, up only 8.8 points.

    I can't find any real news on this thing, but it's obviously a takeover rumor/news story. The market in general has found itself in a takeover heavy wave which is usually the beginning of a strong bull market. Of course, a few weeks does not a trend make.

    <b>Possible Trades to Analyze</b>
    I don't really like trading this kind of news.. ok, that's a lie... I don't like telling people to trade this kind of news. I will say this, a buy write (buy stock/sell call) in the Sep 30 line would look like this:

    Buy 100 Shares RDWR for $38.24
    Sell 1 Sep 30 calls @ $8.60
    That's just $0.36 over parity.

    Selling 1 RDWR Sep 30 put @ $0.45 is the same thing (except you don't own stock, which has value in a rights/voting/tender event), but $0.09 better. So owning stock (regardless of deltas) seems to have value. Ok, that's all I'm saying. We have some positions, but not that trade.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, charts here:

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  2. livevol_ophir

    livevol_ophir ET Sponsor

    Got this via e-mail:
    Read your RDWR write-up on the blog. Hearing there was a full story out in Hebrew with a $45 rumor price and bidding war between HPQ/IBM – story was out for 30 minutes before it was translated and picked up by Associated Press.
  3. Corelio


    I was long this issue a couple of days ago. At the time taking profits seemed like a nice thing...not after today :mad:
  4. livevol_ophir

    livevol_ophir ET Sponsor

    Oh man, that sucks... sorry...