Yesterday, after the market closed, RMBS announced $500 million settlement with Samsung related to DRAM rights. The stock is up 13% today. You would think that now the news is out so the implied volatility should collapse, however, the Feb IV is still elevated at 70%. Investors want to know who is next. Samsung has set a high bar and now Micron, Hynix and even Nvidia are in focus.
I believe the IV will remain elevated. Feb $25 strike straddle is going for $4, so traders still expect 10-15% move by Feb expiration. Assuming we get that kind of move, the stock is still likely to stay range bound with $20 and $30.
I like the following Double Diagonal Straddle Swap trade:
- Buy to open Mar $30 strike calls
- Buy to open Mar $20 strike puts
- Sell to open Feb $25 strike calls
- Sell to open Feb $25 strike puts
The whole trade can be done for a net credit of $2.05. The theta is in your favor as long as Mar IV holds ground, which I think it will given further anticipation of settlements with other companies. The hypothetical P&L chart is attached.
Good luck!
