When expectation turns into sad reality…what to do?

Sorry for not posting the Aqumin blog last week, I actually took a couple of days off….but there is plenty to notice today.

In the stock market there is nothing sadder than a fall from grace. Names climb higher (P/E ratios too) in the hopes of ever expanding earnings. Sometimes the companies just can’t maintain that level of activity. Shares of Finisar Corp (FNSR) issued diminished expectations for the next quarter and down went the stock.

Picking up this activity in Aqumin’s AlphaVision Landscape in the Abnormal Option Volume View is easy. The FNSR move is 1409% of 1 standard deviation (the tall building) for the name at the closing implied volatility. It is needless to say that this was not priced in to the options and is a good reminder of what can happen on any earnings announcement. The green color indicates volume at least 2 times Average Daily Volume. The Optical Networking area of the Telecom subsector was really on fire today with most of the names moving at least 250% of 1 standard deviation and implied volatility in April up 4 or 5 points depending on the name.

For JDS Uniphase (JDSU), Oclaro Inc. (OCLR) and Oplink Communications (OPLK) earnings don’t come until after the April cycle (check for yourself). Obviously the FNSR announcement has put a damper on the potential continuation of growing earnings in the group. One thing about a pop in implied volatility is that it works for calls and puts. The out of the money calls are expanding with the rise in Implied Volatility as liquidity providers adjust to all the new downside protection they have to sell. These giant moves don’t happen every day and getting back to the lofty levels previously held will be fighting gravity. Maybe letting a few of the upside calls go in a JDSU is not such a bad idea. At least the market is paying you more for them today.

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