Wednesday, October 14, 2009

INTC... the Aftermath

In light of Intel's after hours surge and subsequent gap and crap, let's deconstruct its 3Q earnings saga.

A Price Perspective:

[Source: Think or Swim]

1. The Surge: After beating the numbers, INTC saw a strong upward surge in its stock price- reaching an after hours high of $21.90 or up 6.8% from its close.
2. The Gap: Although INTC gave back a portion of its after hours gain, it still opened this morning at $21.26 or up 3.7% from yesterday's close.
3. The Crap: INTC lost momentum right off the bat as the gap was met with immediate profit taking. The "crap" has since stabilized a bit reaching a low around 20.90 or about 2% above yesterday's close.

A Volatility Perspective:

In anticipation of the earnings announcement, INTC options saw the classic pre-earnings IV bid up, as IV30 (red line) rose from 29% on Aug 25th to 38% by yesterday's close. Though the 9 point bidup doesn't seem that big in the Livevol Pro graphic below, it was a 31% increase making it at least notable. Keep in mind the pre-earnings IV bidup is merely a reflection of the option market trying to price in the gap in stock price (and subsequent increase in actual or realized vol) that usually occurs after earnings. Notice how the lift in IV placed it about 15 pts. higher than the HV20 (white line). Remember, the HV 20 is a measure of how volatile the stock has been over the past 20 trading days. The IV30 gives us an indication of how much volatility INTC is expected to realize over the next 30 calendar days. Whether or not this "higher" IV30 is justified obviously depends on how much volatility INTC realizes going forward (click image to enlarge).

[Source: Livevol Pro]

The post earnings vol crush so far has seen a 7 pt. drop (18%) back down to 31%.

Based on the aforementioned analysis, I think the volatility battle for INTC earnings had a decisive winner. Maybe not a huge winner, but decisive nonetheless...

Volatility sellers!

A simple method for selling volatility could have been shorting a Nov 21-20 strangle. It could have been sold yesterday for about $1.52 and bought back today around $1.20. The one-two combo of lackluster price reaction and volatility crush served to be too much this go around for vol buyers.

Better luck next time... suckers! Consider it payback for RIMM-

For other related posts, check out:

3 comments:

FeedTheBull said...

Tyler,

This is Ron Coleman with @FeedTheBull on Twitter. I have been following you for awhile on Twitter and dropped by your blog and found some really great posts. When can I see these articles on FeedTheBull? If you have any questions, you can hit me up on twitter or through the contact form on my site.

I hope to see your stuff there soon.

Tyler Craig said...

Hey Ron. Thanks for stopping by and thanks for the kind words. I'll check out your site when I get a chance.

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