Trading The VirnetX Fire

VirnetX Holding Corporation VHC has been rallying over the past week amid heavy call volume and increasing implied vols. What is driving the action isn't known at present based on a look at the stock. After remaining steady at the $26-$28 mark for much of June, VHC has now climbed to $38.89. VirnetX is a development-stage company. The Company is engaged in developing and commercializing software and technology solutions for securing real-time communications over the Internet. The Company is focused commercializing a patent portfolio for securing real-time communications over the Internet. These patents were acquired by its principal operating subsidiary, VirnetX, from Science Applications International Corporation (SAIC). According to Seeking Alpha, “given the growth of IP-telephony and 4G LTE (Cisco has recently predicted 15B IP-connected devices by 2015,) VirnetX is well-positioned for revenue in the billions in the next 5 years. In the model above, using zero growth after year 5, you can already see how a $100+ valuation of VHC is possible in the coming year. If you look at the earnings potential in 2016, you could be looking at EPS north of $20 with a market and company growing at a CAGR at 20-30%. With a PE equal to growth rate, you could be looking at a potential $400-600 stock in 5 years. This could continue to be a fun year for VHC longs.” ACTION ITEMS:

Bullish:
Traders who believe that the upward trend is set to continue might want to consider the following:

• On days when the market is up, VHC shares tends to outperform the S&P 500 index.

• In both short-term and long-term periods, VHC has shown average correlation (>0.2 and <0.4) with the S&P 500 index.

• The stock's average daily price fluctuations have exceeded that of all S&P 500 index firms.

Bearish:
Traders who believe that this form is temporary may consider an alternate positions:

• VHC currently has an Earnings Rating of 2, which is significantly more bearish than the Software Subsector average of 6.2.

• During the past four weeks, analysts covering VHC have made no upward or downward EPS estimate revisions for the current quarter.

• There have been no upward or downward broker recommendation changes for VIRNETX HOLDING over the past 120 Days.

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