Volatility Trading Digest - IVOLalerts & Takeover File
Volatility Trading Digest - IVOLalerts & Takeover File
Mosaic Co. (MOS)
Mosaic is the world's number one producer of phosphate and a top three producer of potash for the agriculture industry.
On January 18, 2011, Mosaic and Cargill, a privately held international producer and marketer of food, agriculture, financial and industrial products and services announced a transaction that would result in the distribution of Cargill's 286-million share position, a 64 percent stake, in Mosaic to Cargill's shareholders and debt holders. The transaction was billed to improve Mosaic's strategic and financial flexibility, by increasing its stock liquidity.
On June 17, the stock price appears to have reached a bottom at 58.34 and chances are the stock has now fully discounted the dilution from the increased stock float. Since then it rebounded and appears to be in an uptrend. Earnings are expected on July 18 with a mean estimate of 1.39 per share.
The current Historical Volatility is 41.33, with an Implied Volatility Index of 35.05, up from last week at 33, for an IV/HV ratio of .85. The put-call ratio is bearish at 1.2 indicating increased put activity going into the earnings report. Friday's options volume was 54,658 contracts while the 5-day average is 26,400 contracts.
Consider this put sale as a long proxy with some level of safety.
While a close below the last pivot on June 17 at 58.34 could be used as the SU (stop/unwind) the alternative strategy of taking the stock by assignment in the event it reports disappointing earnings is probably a better alternative since the cost basis would be below the 60 support area from last August.
Takeover File
VirnetX Holding Corp (VHC)
VirnetX Holding Corporation develops products for real-time communications such as Instant Messaging and Voice over Internet Protocol. It is commercializing its patent portfolio, providing contract research, prototyping, systems integration and technical services. In addition, they provide security software for 4G phones.
While it has not been specifically designated as a takeover candidate and may be benefitting from current rush to buy patents it has many of the traits associated with takeovers including a recent rapidly rising stock price and implied volatility. Earnings are due on August 9 and expectations are for a loss of .08. Since the reported fundamentals do not appear to justify the recent price rise, we attribute it to either a takeover bid or patent sales.
The current Historical Volatility is 70.38 with and Implied Volatility Index Mean of 90.51, up from 67.78 last week, for an IV/HV ratio of 1.29. The put-call ratio at .22 is bullish. Friday's option volume was 15,255 contracts compared to the 5-day average of 17,820 contracts.
Based upon the theory there is something more than the upcoming earnings report propelling the stock higher here is long call spread with a short put combination to look at.
Use a close back below support at 30 as the SU (stop/unwind).
All of the suggestions above are based upon last Fridayís closing prices using the mid price between the bid and ask. On Monday, the option prices will be somewhat different due to the time decay over the weekend and any price change.
Summary
Last week the combination of European contagion fear along with the dismal US employment report reversed the upward momentum of the recent equity rally. While it is too soon to know if the reversal will now take stocks very much lower, we have identified a potential Head & Shoulders Top.
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