Name That Trade – $GLW: Gorilla in the Missed

by Dan July 7, 2015 1:59 pm • Commentary

Technology stocks, particularly component suppliers to the PC and Smartphone supply chain have been under pressure of late as weak results and pricing from semiconductor / memory suppliers have weighed on the largest sector by weight in the S&P 500.  Corning (GLW) the maker of Gorilla Glass for smartphones and device displays is seeing unusually heavy put volume, already 10x average daily volume and predominately in short dated options. The 5 most active strikes today are in July 10th weeklies, Aug and Sept near the money puts.

The largest trade of the day was a bearish roll in July 10th weekly puts. When the stock was $19.23 a little less than an hour after the open, a trader sold to close 5,000 July 10th 20 puts at 77 cents and bought to open 7500 July 10th weekly 19 puts for 40 cents, prior to this trade there was an opening buyer of 8000 Sept 20 puts for 1.28 to open.

The choice of the weekly roll is interesting as it could be short term protection, or someone playing for lower lows in a whippy market. Either way it looks like they rolled some profits which shows continued commitment but the trader is now willing to risk less with worse odds of success for the next 3 1/2 trading days.

The two most active strikes on the day are the Aug 17 and 19 puts, with 15,000 and 13,000 trading respectively. It appears again there is a trader rolling down, selling to close the Aug 19 puts at .70 and the opening buys of the Aug 17 puts for 22 cents.

The next identifiable catalyst is Q2 earnings confirmed for July 28th.  Aside from that there will be no shortage of rumors of what sort of glass will cover the S edition of the iPhone due out in late September.

GLW is down 15% ytd and down 23% from the 52 week highs, and having just broken important long term support at $20:

GLW 2 yr chart from Bloomberg
GLW 2 yr chart from Bloomberg

If I were playing for further weakness on a miss and guide down I would be targeting the 52 week low of $17:

GLW 1yr chart from Bloomberg
GLW 1yr chart from Bloomberg

Short dated options prices have spiked in the last couple weeks, with 30 day at the money implied vol at new 2015 highs of 32% (blue below), despite realized volatility, (how much the stock is moving, white below) is just off of 2015 lows:

from Bloomberg
from Bloomberg

From all of the activity today on the put side, If I were playing for $17 I like the buy of the Sept 20 puts for $1.28 that are already 55 cents in the money. This should help offset the vol crush post earnings, but also allows for the thesis to play out.  The only thing I might consider selling is the Sept 17 puts at .25 making a $3 wide in the money put spread risking about $1 to make $2.

If I only wanted to target the earnings event on July 28th I might buy the July 31st weekly 19 puts (stock ref $19.44) for .47, making break-even at $18.53

We will keep an eye on this one.