MEMC Stock And Vol Pop; Default Risk Lower But Overall Risk Rises
Ophir Gottlieb | Jul 03, 2012 02:05AM ET
MEMC Electronic Materials, Inc. (WFR) is engaged in the development, manufacture, and sale of silicon wafers. Through SunEdison, MEMC is a developer of solar energy projects. The Company operates in two business segments: Semiconductor Materials and Solar Energy.
This is a stock and vol note in the largest NYSE gainer this morning. Let's start with the news, then move to order flow, stock and vol. Here's a news snippet from yesterday:
MEMC Electronic Materials Inc. (WFR), the second-largest U.S. polysilicon maker, gained the most in almost six months after announcing the sale of four projects in Europe with a total capacity of 98 megawatts.
MEMC completed sales in the second quarter of 60 megawatts of solar farms in Bulgaria and 38 megawatts in Italy, the St. Peters, Missouri-based company said in a statement today. Terms weren’t disclosed. -- Source: Bloomberg via Yahoo! Finance; MEMC Electronic Materials Leads NYSE, What You Need To Know , written by Sammy Pollack.
It's interesting that the vol has risen off of this news, implying either that the risk of bankruptcy / default was not the only concern here, or that whatever risk this contract(s) has alleviated has been replaced with new risk. More on that in a sec. Lets turn to order flow.
The company has traded over 11,000 contracts on total daily average option volume of just 3,395, with calls trading on an 8.1:1 ratio to puts. The Stats Tab and Day's biggest trades snapshots are included (below).
The Options Tab (below) illustrates the action. It looks like the Aug 2.5 calls are showing the greatest volume with over 5,000 having traded in the first two hours on OI of just 151. The action looks to be long those calls, substantially, IMHO.
The Skew Tab snap (below) illustrates the vols by strike by month.
Get The News You Want
We can see that Aug is substantially elevated to Oct. Last year earnings were released on 8-3-2011, so it's a good bet that an earnings release will occur in the Aug expiry but outside of Jul. That's likely the reason for the elevated vol. Other than that the skew shapes look pretty "normal," with a slight note that the Jul 3 calls are trading at higher vol than the ATM strike, which is sort of backwards and points to the buying pressure today on the call side.
Finally, the Charts Tab (six months) is 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 that just ~five months ago this was a $6 stock. We can also see that after the last two earnings reports ("E" icon) the stock dropped on the news, and continued to drop after. The 52 wk range in stock price is [$1.44, $8.64].
On the vol side, we can see how the implied was in fact ~140% less than two months ago, then trailed back down to the ~90% level. The news today has pushed vol back above 100%, but well below the annual high. The 52 wk range in IV30™ is [46.69%, 138.88%], putting the current value in the 62nd percentile. As I mentioned earlier, the rising vol off of this news reflects increased uncertainty (risk), so whatever risk has been alleviated wrt liquidity / default / bankruptcy, has been overshadowed by risk of... something else.
Disclosure: This is trade analysis, not a recommendation.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.