CALL: Vol Diff Opens, Skew Diverges, Reflects Upside Potential

magicJack VocalTec Ltd (CALL) is a provider of voice-over-Internet-Protocol (VoIP), the softphone (magicJack PC) and the magicJack products. magicJack VocalTec’s product include magicJack and magicJack PLUS, magicJack PC and magicJack APP.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. The issue here is not so much the vol diff as earnings are due out in March, but rather the very interesting skew divergence.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated front month vol simply because earnings are approaching.

Let's turn to the Skew Tab to examine the month-to-month and in this case, the compelling line-by-line vol comps.

So we can see two phenomena here:

1. Clearly Maris elevated to Apr --that is due to earnings.

2. Check out the divergence in skew shape across both months. That upside bend to the Mar skew (which is not present in the Apr skew) reflects greater upside risk (potential) of off this earnings release (per the options market). This is very much in opposition to he last few posts I have done for calendar vol diffs, where the skew shapes have shown beautiful consistency.

Now we can turn to the one-year Charts Tab (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 the Y-O-Y return has been pretty poor with stock closing at $23.64 one year ago -- so it's down substantially.

On the vol side we can see the implied is still trading above both historical realized vol measures, though oddly, it has been dipping as earnings approach. That one I have no real good explanation for.

Finally, let's look to the Options Tab (below).

Across the top we can see that Mar is priced to 90.06% vol where Apr is priced to 78.30% or about 12 vol points. Again, that's due to earnings. But, look at that upside skew vol diff. For example, the Mar/Apr 15 call spread shows ~20 vol point diff.

Disclosure: This is trade analysis, not a recommendation.

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