Technology Weekly Options Event Watch

---

SUMMARY AND HIGHLIGHTS

• Technology volatility, as measured by the VXN, increased 0.2% last week, compared to a decrease of 0.4% in the VIX. Looking ahead to this week, notable earnings include ADSK, BRCD, CIEN, DELL, MRVL, and NTES. NVLS will also host a mid-quarter update on 2/28/07.

• In all of the trades we chose to highlight this week, options investors bought call options. Active names are STMicroelectronics (STM), Skyworks Solutions Inc. (SWKS), Radware Ltd. (RDWR), and Qualcomm Inc (QCOM). All Tech trading this week did not consist of call buyers, however. Similar to the trading we highlighted last week in Semi-based equity options, investors in the Semi Holdrs Trust (SMH) bought March volatility through 30,000 March 35 puts, and in the PHLX Semi Index (SOX), we saw investors buy puts and sell calls in March.
  

UPCOMING TECHNOLOGY CATALYST EVENTS
Autodesk Inc. (ADSK) is scheduled to report 4Q07 results on Tuesday, February 27, after the market close. The Street is expecting EPS of $0.46 on revenue of $496.9 million. The company guided 4Q revenue to come in between $490 million and $500 million. Recent channel checks seem to indicate ADSK had a solid quarter with potential for slight upside. Strength in Europe and Asia Pacific combined with continued customer upgrades from 2D to higher margin 3D software have propelled shares from $30 to the $40s in the past six months.

Investors will be focused on these key items, as well as the company’s outlook on U.S. business given the slowing housing and manufacturing environment, and any update to its ongoing stock option investigation. Shares of ADSK have exhibited significant volatility around earnings, moving on average +/-7% over its last seven earnings announcements.

NOTABLE TRADING
STMicroelectronics (STM) – On Thursday of last week, bullish volatility buyers aggressively bought March and April 20 calls, with more than 20,000 trading throughout the afternoon. The March calls traded up to $0.65, as March at-the-money implied volatility climbed approximately 12 points (+53%) to close at 35%. In the April option cycle, the calls traded up to $0.80, while at-the-money implied volatility rose approximately 9 points (+43%) to close at 30%.

Skyworks Solutions Inc. (SWKS) – During last Friday’s session, we observed seemingly bullish call buying as investors bought 10,000 August 7.50 (.43d) calls with the stock trading approximately $6.65. On an edition of the Technology Weekly from early December 2006, we highlighted SWKS due to February (now expired) and May 7.50 call buyers. The stock was approximately $7.00 at the time, and within two weeks, it appreciated roughly 12% before experiencing a move to the downside. Last week’s August call buying implies investors are expecting increased volatility, likely resulting in another move to the upside. SWKS calls trade on average fewer than 500 contracts a session.

Radware Ltd. (RDWR) – Last Tuesday, with the stock up more than 3.0% at the time ($14.30), opening investors bought 2,500 March 15 (.37d) calls for $0.30. The volume compares to the 21-day average daily volume of less than 70 contracts a session. The short-term nature of the options suggests investors may be speculating on an upside move in the stock above $15.30 between now and March expiration (3/17/07). Since Tuesday’s trade, March at-the-money volatility is up 8.5 points (+32%), currently resting at 35%.

Qualcomm Inc (QCOM) – On Thursday afternoon, investors bought calls and/or sold puts in March and April indicating a bullish bias. Trading up until the closing bell, investors bought approximately 4,000 March 42.50 calls, 7,000 March 45 calls, 25,000 April 45 calls, and sold 10,000 April 42.50 puts. Overall, recent option volume in QCOM has been significant, and call options are trading twice as much as put options. On February 14, for example, more than 76,000 call options traded, and the April 40 and 42.50 calls were especially active with buyers. Thursday’s activity this week prompted a 2.5 point (8%) increase in March implied volatility and a 3 point (11%) increase in April implied volatility. "

---

View Susquehanna Financial Group's post archive >