Mike Bristow, head broker for Vtrader Group, got my attention on this one.
The company has traded over 41,000 options on total daily average option volume of just 4,207. The action is fast and furious in the Aug options. A 35/37.5 strangle sale (from what I can tell), 14,000+ Aug 40 calls and nearly 7,000 41 and 42.5 upside calls (combined volume). 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 strangle sale is opening (compare OI to trade size). The Aug 40's are opening as well. The Aug 41 and 42.5 are ambiguous.
The Aug upside look like sales on the 41 and 42.5 sales. The Aug 40 calls look like purchases for size. The skew is bent severely up from this order flow. The Aug 35 line is bent down b/c of the strangle sale. In total it leaves a great skew for hunting.
The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.
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 hard stock drop of late and the gap down from earnings yesterday of ~$3. The IV30™ has now jumped past the HV20™.
This is trade analysis, not a recommendation.
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so what kind of hunt you are looking for with given skew?
ReplyDeleteLook for spreads that make use of buying low vol and selling high vol. Particularly if there is liquidity so trades go for mid market rather than on the NBBO on the bad side.
ReplyDeletecall spreads I assume?
ReplyDeleteI think the 39 line as of the blog was elevated so, something like this:
ReplyDeleteSell 2 Aug 39 calls @ $1.50
Buy 1 Aug 40 call for $1.10
Buy 1 Aug 37.5 call for $2.20
Max Gain: $120
Max Loss: $30
Profitable if RRC stays above $37.80.
So a 4:1 maxGain/maxLoss payout, limited downside; skew scalp and greater than 50% chance of being profitable if you take the short term stock probability measure as 50/50 up and down.
this certainly make sense...
ReplyDeletewhat do you think about calendar spread like selling Aug 40/ buying Sep 40 or smth?
These are all different ways to bet on vol. If you feel one month is elevated relative to another, certainly a calendar can be a good approach.
ReplyDeletewhere are they looking for this stock to be at expiration?
ReplyDeleteis there anything that inverters are w2aiting to here or will this move with the rest of the market?
not sure...
ReplyDelete