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Earlier this morning, it was announced that Covad Communication's (COVD - 5-9/32) Chief Executive, Chairman, and President Robert E. Knowling resigned, effective immediately.
The company, which provides dedicated high-speed digital communications services to the Internet, had its initial offering in January 1999 with 7.8 million shares priced at $18 each (17.55 million sharers at $8.00 split adjusted). After peaking at over 66 this past March, the shares have been unable to thwart their decline in price. On October 17, the company announced third-quarter earnings of a loss of $1.22 per share, falling short of Street estimates by four cents per share. Since its initial offering, the company has yet to turn a profit.
Options investors are maintaining a bullish stance on COVD, as there are currently 13,623 open puts versus 36,477 open calls for options with up to three month until expiration. Option activity over the past several days has diminished considerably, as open interest changes have been minimal. With a 30-day historical volatility of over 300 percent on the stock, the implied volatilities on the options seem underpriced with both put and call options holding under 150 percent with no skew toward either view. Remember, "cheap" can become "cheaper" and these options might not represent bargains, just a lack of interest.
Short interest on the shares ballooned by 425 percent to over 16.5 millions shares over the past month. The change of a high-ranking official represents a "fundamental" change. We must now wait to see how the investing public views it.