RMBS - Decision Today and Options Trades

Discussion in 'Options' started by livevol_ophir, May 26, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    RMBS is trading 25.10.

    <img src="http://4.bp.blogspot.com/_hMry1m7UF10/S_02jhrCB8I/AAAAAAAAClg/gQ-1TuXwFkE/s1600/rmbs_summary_2.gif">

    This is a continuation of the first blog: "Rambus (RMBS) - Trading a Lawsuit". The decision is due out today. You can read the first blog by <a href="http://livevol.blogspot.com/2010/04/rmbs.html">Clicking Here</a>.

    Since no one will actually do that, let me catch you up.

    <b>Jan 18, 2010</b>
    <a href="http://online.wsj.com/article/SB10001424052748703837004575013554246385886.html">Click Here for Reference</a>.
    Samsung Electronics Co. agreed to pay as much as $900 million over five years to Rambus Inc. as part of a deal to settle some high-profile litigation focusing on memory chips.

    You can see the pop in the stock after:

    <img src="http://4.bp.blogspot.com/_hMry1m7UF10/S9hNOFMp6NI/AAAAAAAACFA/ACkLnTAqYaY/s1600/rmbs_small_chart.gif">

    Barrons came out with a great story relaying what's at stake and possible outcomes.
    <a href="http://www.benzinga.com/markets/company-news/246233/rambus%E2%80%99-fate-depend-on-the-outcome-of-lawsuits-barron%E2%80%99s-rmbs-mu">Click Here for Reference</a>.
    Rambus (NASDAQ: RMBS) has recently settled a patent case with Samsung. The company is also currently involved in separate lawsuits worth $12 billion against Micron Technology (NASDAQ: MU) and Hynix Semiconductor. Investors are bullish about the outcome of these

    According to a report released by Barron’s, the stock is expected to grow by 100% in the case of a positive outcome. However, the chipmaker has a bleak scenario if its lawsuits fail. Harold Hughes, CEO of Rambus, said, “We do not intend to give Hynix or Micron a deal comparable to the one we gave to Samsung."


    Yup - the stock could go to "zero" or double if there are "extreme" judgements.

    Ok, so here we are, decision day. A trader (and reader), Eddy Altamirano, drew my attention to a huge trade early on (45 min. into the trading day).

    The company has traded over 19,500 options in the first hour on total daily average option volume of just 10,813. The attention grabbing trade was 9,300 Jun 21 puts sold. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/05/rambus-rmbs-huge-trade-on-decision.html"> in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/05/rambus-rmbs-huge-trade-on-decision.html"> in the article</a>) illustrates that the puts are mostly opening (compare OI to trade size).

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/05/rambus-rmbs-huge-trade-on-decision.html"> in the article</a>) illustrates exactly the vol of those puts relative to the rest of the chain.

    Note the pronounced skew in the front month (red) relative to the other months. You can also see how elevated the vol is in Jun. There was a large stock print four minutes after the option trade so it's possible someone turned those puts into short straddles. It looks like 215,000 traded which would be on the delta (i.e. not 1:1 straddles).

    In the first blog I noted that the vol for the ATM straddle seemed low (it was 64 vol). The ATM vol is now near 115. I also noted that the front month (at the time May) was probably a sale. Things have changed now... The decision is apparently due out at any moment, the front month vol has nearly doubled and now the back months are less expensive (vol).

    I get the feeling that no one really believes this stock can double from here. I don't know why that is, and I'm not taking a position either way. I'm just noticing the front 30 calls are only worth ~$0.90 and the 19 puts are worth ~1.00... Both seem cheap if a definitive decision comes out. But of course, that's the catch-22 in this case. Definitive decisions keep getting delayed.

    Buying the wings now is less about betting on the importance of the outcome, and more about the fact that there will be an actual outcome.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews here:
  2. livevol_ophir

    livevol_ophir ET Sponsor

    Since this was posted (i.e. a few minutes ago), the IV30&#8482 has popped 7 more points.

    <img src="http://2.bp.blogspot.com/_hMry1m7UF10/S_1AuRMxa6I/AAAAAAAACmI/ocLrMV6OFuU/s1600/rmbs_summary3.gif">

    Decision feels like it's coming...
  3. How's the bid-ask in the June 10 and 12.5 puts? Which way are you leaning? :confused: :( :D
  4. livevol_ophir

    livevol_ophir ET Sponsor

    I am very very very small long the wings. I hate buying options, but this feels too cheap. Having said that, with all the delays and "exceptions" etc, I don't feel comfortable really playing this one large. I'm in it just to keep my attention basically.