The first post on KWK (last Friday; i.e. three days ago) is available by Clicking Here.
Someone is getting long...
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KWK is trading 12.62, up 3.0% with IV30™ up 1 point. The LIVEVOL™ Pro Summary is below.
The company is very active again today. It has traded nearly 10,000 options in the first hour on total daily average option volume of just 1,868. Again, the largest trade is the Jul 11/13 risk reversal (sell puts/buy calls). The July 15 calls are also active, opening 2,500 times on essentially zero OI. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).
The Options Tab (click to enlarge) illustrates that the Jul 15 calls are opening (compare OI to trade size). You can also see the huge OI in the Jul 11 puts (short interest) and the Jul 13 calls (long interest) from the trades on Friday. We're looking at ~13,000 OI on each line compared to no more than 2,700 on any other line.
Note also at the top of the snap that the Jul vol (mid-summer) is 64.55 compared to Sep (Fall) which has earnings at just 57.93.
The Skew Tab snap (click to enlarge) today is even weirder than the one on Friday (which was pretty unusual too). I have included both skews for convenience.
The upside in July (the yellow line) has a massive spike on the Jul 14 line. Note that it's the 13 and 15 lines that are trading. No one is biting on that expensive 14 line. The skew does bend up on the 13 line (which makes sense), but not on the 15 line (which is a bit curious). My best guess is that the skew finds a shape - whether it be a parabola (i.e. entire upside is bid), or back to a smirk (entire upside declines in vol). I don't think this weird skew shape persists for too long.
Another thing to note is the Sep skew (green). Look how much higher the Jul 14 calls are relative to Sep 14 (that's 10 vol points or ~ 18%) (look at today's Skew snap (top one), not Friday). Note also in Sep that the 15 calls are trading at a higher vol than the 14 line. Trading opportunities exist when skew gets this out of whack.
For example, if you want to bet with these trades (i.e. get long), a Sep 14/15 call spread is sitting up there for ~$0.20 fair value (i.e. bet $0.20 to make $0.80). A bunch of other possibilities exist, including the opportunity to trade position neutral while scalping some vol and being very low risk.
Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.
We can see the recent climb in KWK.
This is trade analysis, not a recommendation.
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" A bunch of other possibilities exist, including the opportunity to trade position neutral while scalping some vol and being very low risk."
ReplyDeleteCan you give an example of this? I think I understand what you're talking about, but I am not sure. I assume the idea is that the skew will come back into line, so selling the pumped up IV is the play, but how to do that being close to neutral and low risk is murky to me.
"A bunch of other possibilities exist, including the opportunity to trade position neutral while scalping some vol and being very low risk."
ReplyDeleteCan you give an example of this? I understand the basic idea here, but the application is murky to me; Selling the pumped IV I can follow, but to do so and be fairly neutral seems tough. What am i missing?
You can unwind the block trade trade at great prices, take the other side with other options at "unadjusted prices", and scalp the vol.
ReplyDeleteFor example. Sell Jul 13 calls, buy Jun 11 puts. Buy Sep 13 calls, sell Sep 11 puts.
Or...
Sell Jul 13 calls, buy Jul 14 calls on a ratio (more purchses than sales). Buy Jul 11 puts Sell Jul 10 puts on a ratio (more sales than purchases).