Selloff or Market Correction? Either Way, Here's What to Do NextSee Overvalued Stocks

MetroPCS Communications: Skew Moves Abruptly in a Day; Order Flow into Earnings the Culprit

Published 02/22/2012, 01:21 AM
Updated 07/09/2023, 06:31 AM
MAR
0.00%
TST_old
0.00%
TSYS
0.00%
TMUS
1.06%

MetroPCS Communications, Inc.  (PCS) is a wireless telecommunications provider in the United States measured by the number of subscribers served. The Company offers wireless broadband mobile services under the MetroPCS brand in selected metropolitan areas in the United States.

PCS has earnings due out 2-23-2012 BMO, so the last trading day before earnings would be 2-22-2012 (aka today). The stock caught my attention for two reasons: (1) Bullish order flow and (2) Upside Skew and a resulting vol diff.

Let’s start with the order flow. The Livevol® Pro Stats Tab and Day’s Biggest Trades are included below.

PCS_STATS7

PCS_TRADES7

We can see that over 7,600 calls have traded yesterday, yielding a 34.6:1 call:put ratio. The total daily average volume in PCS is 2,085, so the call volume is substantial. The action has been in the Mar 12 calls, where over 5,250 have changed hands. I’ve included the Options Tab, below.

PCS_OPTIONS7

Note that the existing OI in those calls is just 39, so these are substantially opening. My best guess is that the order flow is getting long these calls, though it is a bit ambiguous. The circumstantial confirming evidence is the skew. Let’s look at that, below.

PCS_SKEW

Check out that awesome upside skew in Mar. While “normal” skew exhibits lower vols as strikes increase, it’s the complete opposite for PCS. That is likely due to order flow. How do I know that? I’ve included the skew chart as of last Friday, below.

PCS_SKEW

And we can see here how normal the skew is – lower vols to higher strikes. Livevol® Pro is pretty awesome… just sayin’. Can’t trade without it.

Finally, let’s look to the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

PCS_CHARTS7

I wrote about this one for the TheStreet (OptionsProfits), so no specific trade analysis here. I will say that on the stock side, we can see the cataclysmic drop off of earnings in early August of 2011. The stock dropped 36.6% in that one day -- so there's recent history of large moves off of earnings. On the vol side, we can see how just today the IV30™ has picked up. It will likely continue it’s rise into trading tomorrow (ya know, or not...). In any case, that gamma (and vol) in Mar should be expensive given earnings.

This is trade analysis, not a recommendation.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads.

Which stock should you buy in your very next trade?

With valuations skyrocketing in 2024, many investors are uneasy putting more money into stocks. Unsure where to invest next? Get access to our proven portfolios and discover high-potential opportunities.

In 2024 alone, ProPicks AI identified 2 stocks that surged over 150%, 4 additional stocks that leaped over 30%, and 3 more that climbed over 25%. That's an impressive track record.

With portfolios tailored for Dow stocks, S&P stocks, Tech stocks, and Mid Cap stocks, you can explore various wealth-building strategies.

Unlock ProPicks AI

Latest comments

Loading next article…
Risk Disclosure: 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.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.