Innovative Solutions and Support [ISSC]
The memo issues no verdict. This states what a position would look like and what could actually be filled. Nothing here is a recommendation to trade.
Spot $17.67 · 2026-07-29 (−7.9% on the day, from $19.18)
| Alpaca IEX-feed volume, 2026-07-28 | 13,326 shares |
| Feed caveat | Alpaca's IEX feed captures roughly 5% of consolidated volume — an ADV taken from it understates the truth by about 20x. Scaling gives an estimated true ADV of ~270,000 shares, ~$4.7m/day. This is an estimate from a known scaling factor, not a consolidated-tape measurement. |
| A 1% position in a $50m book | $500k ≈ 28,300 shares ≈ 10% of one day's estimated volume |
| Exit at 25% of volume | ~2 trading days |
| Free float | 17.83m shares outstanding less insider holdings (not quantified here) |
PASS at a 1% position; the position is exitable in about two days at a participation rate that does not signal. Above ~2% of a $50m book the exit lengthens past a week, which on a name whose bear case is a leverage event is the wrong shape of risk.
Per the framework, size constrains position sizing, never admission. ISSC is admissible. It is capacity-constrained, and the constraint should be stated as a hard cap rather than discovered on the way out.
January 15, 2027 chain (Alpaca, 2026-07-29), strikes $10–$30. Total open interest across all 16 contracts: 506. Maximum OI on any single contract: 111.
| Type | Strike | OI | Bid × size | Ask × size | Spread / mid | IV | Delta |
|---|---|---|---|---|---|---|---|
| call | 15.00 | 16 | 4.98 × 90 | 7.35 × 142 | 38% | 1.052 | 0.730 |
| call | 17.50 | 20 | 3.65 × 161 | 6.51 × 116 | 56% | 1.037 | 0.654 |
| call | 20.00 | 35 | 2.95 × 146 | 3.32 × 25 | 12% | 0.805 | 0.534 |
| call | 22.50 | 50 | 2.02 × 192 | 4.22 × 261 | 71% | 0.947 | 0.492 |
| call | 25.00 | 111 | 1.57 × 57 | 1.92 × 41 | 20% | 0.770 | 0.359 |
| put | 17.50 | 1 | 2.12 × 116 | 3.76 × 10 | 56% | 0.677 | −0.385 |
| put | 20.00 | 3 | 3.46 × 90 | 5.62 × 67 | 48% | 0.691 | −0.494 |
| put | 22.50 | 2 | 4.99 × 89 | 7.33 × 68 | 38% | 0.660 | −0.606 |
Other expiries: 2026-10-16 total OI 1,496; 2026-09-18 total OI 45.
Assessment: uninvestable, at any size.
No options structure is proposed for ISSC and none should be. A vehicle that cannot be filled is not a vehicle. The vehicle is common stock or nothing.
Nothing below is a recommendation.
Common stock only. Hard cap at ~1% of a $50m book (~28,300 shares) on liquidity, reviewed if volume rises.
| Realised volatility (screen) | 82% |
| Bear case | −45% |
| Market cap | $316m — micro cap |
| Implied size at a 10%-of-book vol budget vs a 25%-vol reference name | ~0.3x a normal position |
At 82% volatility ISSC sizes to roughly a third of a standard position — and the liquidity cap binds at about the same level. The two constraints agree, which is the right outcome: this is a small position or no position. The framework's stated interim control (inverse-vol sizing protecting against a fat left tail) does the work here without any judgement call.
Spot $17.67 after a −7.9% day, at the 54th percentile of the post-carve-out P/S range — i.e. neither cheap nor dear against its own recent history. There is no valuation urgency.
The one thing worth waiting for is the Aydin 8-K/A (due ~2026-09-30). A $24.5m acquisition — 7.8% of the market cap, 100% debt-funded — with no disclosed revenue or earnings is an information gap that closes on a known date. Buying before it is buying a business whose size is unknown.
| Test | Level | Reads as |
|---|---|---|
| Backlog falls below $65m | FY2026 10-K (est. late Dec 2026); was $77.4m at 9/30/25, $89.2m at 9/30/24 | Book-to-bill stays below 1.0x for a second year. The organic business is shrinking. Exit. |
| Organic revenue growth turns negative | company's own organic disclosure in the FY2026 10-K | The carve-outs are not being integrated into a growing business. Exit. |
| Total Net Leverage covenant grid steps up | pricing moves toward SOFR+2.75% | Leverage is rising into weaker EBITDA. The acquisition engine is out of fuel. Reduce. |
| An equity raise off the S-3 (filed 2025-10-14) | any takedown | Confirms the debt capacity is exhausted. Re-underwrite: the mechanism now dilutes rather than levers. |
| Goodwill or intangible impairment | any | $62.7m of intangibles against ~$9.4m of tangible book. Backlog intangibles were already written down once in Q2 FY2025. Exit. |
| Loss of a significant customer or DoD programme | any 8-K | 57% of revenue from "a limited number of customers," terminable at convenience. Exit. |
| Price test | −25% from entry ($13.25) with no thesis event | Sizing error, not thesis error. Halve. |
Not "a 44.8% grower at 4x sales with a 38.8-point margin of safety."
It is: a levered micro-cap roll-up of orphaned Honeywell and Sparton avionics product lines, growing +12.9% organically and +19.1% on the best filed like-for-like basis, at 16.9x EV/EBIT and 18.6x earnings, run by a management team that has executed five carve-outs in 37 months and has consumed ~80% of its $100m credit facility doing it.
The mechanism is real and it is good. Buying declining product lines from a large OEM and running them at higher margin in a lower-overhead company is a legitimate, repeatable, evidenced strategy — and ISSC's operating margin went from 20.6% to 25.4% executing it.
The thesis is therefore a financing thesis, not a growth thesis. The question is not "can ISSC grow 17.6%?" It is "can ISSC keep buying?" That question is answered by the credit agreement and the S-3, not by the end-market.
Position it as a small, liquidity-capped, inverse-vol-sized holding in a serial acquirer near its borrowing limit — or not at all.