Hertz (HTZ) - Risk Reversal Trades in Jan on Stock Yearly Low

HTZ is trading $8.57 with IV30™ down 2.0%. The LIVEVOL™ Pro Summary is below.



The company has traded over 12,600 options on total daily average option volume of just 1,652. The largest trade was a Jan'11 7.5/10 risk reversal (sell puts/buy calls). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that both the calls and the puts are mostly opening (compare OI to trade size). Note also that Sep, and Oct vol are down, Dec is unched while Jan'11, Mar'11 and Jan'12 are up.



Note also the gigantic OI in the Sep 10 line (~25000 in calls and 13,000 in puts). It looks like the calls are long and puts are short but I'm not sure.

The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.



I've isolated the Jan'11 skew and highlighted the strikes that traded. The selling interest in the outs has pushed the vol in that line down a bit creating a little kink. The 10 strike seems unaffected but the 11 strike has kinked up.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV120™ - green vs HV120™ - purple). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



We can see the 120 day vol divergence between IV and HV (64 vs 56). Also in the yellow shaded area we can see the shorter term vols diverge even more (IV30™ is 64 vs HV20™ of 38).

The 52 wk range for HTZ is [$8.41, $15.60] so it's on the cusp here. A tiny trade could be a Sep 9/10 call spread purchase for $0.20. If you can get that price it's a 4:1 maxGain:MaxLoss payout, which means the odds are pretty bad (keep that in mind). A Sep 9 straddle sale $0.70 over (i.e. $1.10 against $8.60 stock) is a straight vol play - though risky.

If you like the chart and think HTZ will bounce, the risk reversal for $0.05 or less looks decent too (i.e. the order flow).

This is trade analysis, not a recommendation.

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Principal Financial (PFG) - Call Buyers, Vol Movers

PFG closed at $22.51, down 3.0% with IV30™ UP 10.2%. The LIVEVOL™ Pro Summary is below.



PFG caught my eye a few days ago; those of you that follow me on Twitter saw that tweet. Combined with the action yesterday, it felt ready for a full post.

The company traded over 12,500 options on total daily average option volume of just 1,134. All but 82 contracts were calls. The largest trades look like purchases of the Oct 25 calls ~11,500 times. 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 OI in those calls is considerably larger than the trade volume.



On 8-27-2010 the OI jumped in those calls from ~300 to over 20,000 (so the trades were 8-26). The Livevol Pro Level II pop out is included below (click to enlarge).



Looking to the Time & Sales Tab on that day for those calls, I found large purchases. The largest trades (>= 100) are included (click to enlarge).



So in the last five days, over 30,000 long OTM calls have been opened in Oct in a stock that averages 789 calls a day (from the Stats Tab).

The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.



Check out the vol difference between the Oct 25 and Sep lines. The buying interest has pushed the vol up in Oct, but the lack of interest in Sep has kept that month low.

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 IV30™ has risen as the stock has come off recent lows; in other words, there has been buying interest in PFG premium even as the stock has moved up. A 5 point vol diff between the IV30™ and HV20™ has opened up. The HV180™ is 40 compared to IV30™ of 43 (ish), so the vol doesn't scream sale.

Possible Trades
If you like the order flow you could analyze an Oct 24/25 call spread and fund that with either a Sep 21 or Oct 18 put sale naked. That leaves you premium neutral and long deltas. The Sep trade yields a ree call spread if the stock stays above $21 for the next two weeks. You could also buy naked the Oct 25 calls if you felt it to be "smart" money. But ya know...

This is trade analysis, not a recommendation.

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iShares MSCI Japan (EWJ) - Vol Seller in Japan Is a Bet on Global Economy

EWJ (Japan) is trading $9.49 with IV30™ up 5.3%. The LIVEVOL™ Pro Summary is below.



Mike Bristow from V-trader Group gave me this color.

The ETF has traded over 20,000 options on total daily average option volume of just 5,466. The largest trade, accounting for 20,000 contracts was a Jan'11 9/10 strangle sale @ $0.56. 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 calls and puts have huge OI. I see the puts with long OI and the calls with short. It looks like a Jan'11 9/10 risky went up on 8-11-2010 25,000x (buy puts/sell calls).



The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.



Not a lot going on there; but the Charts Tab does have a lot.

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.



Note how the IV30™ trades well above the HV20™ consistently in this ETF. i.e. the vol is usually a sale. For a brief moment a back spread was a winner, then back to vol sales. Recently the divergence has opened up pretty wide to 24 vs 18. The strangle sale today sells ~21 vol on average.

Japan is interesting, in that it plays a big role in the overall global economy. Lower vol there means higher markets (usually). Check out this blog from 5-18-2010:The European Crisis Explained and Currency Option Trading.


Hmm... Bullish? Not really clear. If Japan rallies relative to the rest of the globe, does that imply a strengthening or weakening currency? If it's a weakening currency, ok... But if it's strengthening, that may imply bad news.

This is trade analysis, not a recommendation.

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Check Point (CHKP) - Call Buyers, Vol Buyers and Skew Shifts

CHKP closed at $35.20,up 1.0% on Friday with IV30™ up another ~3%. The LIVEVOL™ Pro Summary is below.



The company traded over 10,000 options on total daily average option volume of just 1,734. The action was in the Oct 39 calls which traded 5,200+ times (mostly purchases) on essentially no option interest. 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 calls are mostly opening (compare OI to trade size).



Note at the top of the Options Tab we can see that the Oct vol is higher than all the other months. The buying interest pushed the Oct vol up 1.1 points, which was more than any other month. Also note the OI in the Oct 37.5 calls. This interest looks long to me, I'm probably 80% certain of that. The CHKP vol is an interesting animal. Let's loook a bit closer.

The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.




Note how Jan'11 (green) has a nice normal shape (smirk). The Oct options (yellow) however have a kink upward from the premium long order flow. The Sep options have reacted a bit, with the upside showing a slight turn to the upside as well. Going all the way out to the 42.5 line, the Oct vol is a full 7 points higher (i.e. 28% higher) than the Jan'11 vol.

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.



The vol chart is pretty interesting. From 3-1-2010 through 6-15-2010, the IV30™ was a sale to the HV20™. Then after a short break in that pattern, it was a sale again for a month or so in to mid July. The underlying moved more than the vol for about a month, then since 8-9-2010, vol has been a sale again.

As of right now, the divergence between IV30™ (27.8) and HV20™ (16.5) has grown to more than 11 points. Said differently, the IV30™ is 67% higher than the HV20™. With the stock up on Friday, this divergence widened on the call side buying.

Possible Trades To Analyze
An interesting trade could be to sell the Sep 35 straddle @ $1.80. Then purchase the Sep 34/36 strangle for $0.95. This yields an $0.85 credit with a max loss of $0.15. At expiration this trade makes money if CHKP is in [$34.15, $35.85]. The odds are this trade loses (thus the great payoff ratio), but if you felt the payoff was better than the odds, it could be an interesting bet.

For the more adventurous, an Oct 35 straddle sale @ $3.00 and covering up with the Sep 34/36 strangle gets shorter even more vega. This trades hopes for CHKP to stay at $35 into Sep expo, then close the Oct straddle out winning to time decay and a potential vol convergence.

This is trade analysis, not a recommendation.

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Trade Journal 8-27-2010

Click to enlarge (minimum possible trade size reported).



This is trade analysis, not a recommendation.

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International Game Technology (IGT) - Sep Vol Seller on Odd Stock Behavior

IGT is trading $15.10, with IV30™ down 6.6%. The LIVEVOL™ Pro Summary is below.



The company has traded over 25,500 options on total daily average option volume of just 1,870. Essentially all of the volume came from a sale of 12,500 Sep 15 straddles @ $0.90 (25,000 contracts). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).





The Options Tab (click to enlarge) illustrates that both the calls and puts are mostly opening (compare OI to trade size).



This a vol sale (duh). At expo it wins if IGT stock is in ($14.10,$15.90). Before expo, this trade is short $17,500/vol of vega. So each vol point move makes a $17,500 difference in PnL. Note that vega is a function, not a constant, so it changes.

The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.



Note how clearly we can see that the Sep vol is below the other two months (red curve is below the yellow and green curves).

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.



Note two things. First, look how the stock has literally stuck at the $15 level for the last month - pretty weird given the market's choppiness. Second, look at how this has affected the HV20™ ; it has collapsed. This is a bet that IGT plays the same "stuck in the mud" game for another few weeks.

This is trade analysis, not a recommendation.

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Hecla Mining (HL) - Call Buyers Create Backwards Skew Trading Opportunity

HL is trading $5.35, up 3.9% with IV30™ up 5.5% today. The LIVEVOL™ Pro Summary is below.



The company has traded over 36,000 options in the first hour on total daily average option volume of just 7,322. All but 3,158 contracts have been calls yielding a 10:1 call:put ratio. The largest trades have been Dec 5 call purchases (~25,000x). 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 Dec 5 calls are mostly opening (compare OI to trade size). Note also how vol is up across the board from Oct through Jan'12.




The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.



This is interesting. It looks like the order flow has pushed the upside skew upwards creating a parabola. This makes a call spread unique in that you can scalp skew while getting long. The vols are of particular importance in this name, let's look to the charts to see why.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV120™ - green vs HV120™ - purple). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



Note how the IV120™ is well above the HV120™ and diverging even more of late. As of right now I see the difference as ~56 to 44 or 12 vol points. The call purchases today actually printed on vol as high as 60 (see largest trades snap in the top of the article).

A Dec 5/7 call spread looks to purchase 55 vol and sell 58 vol. If you like the order flow and want to get some deltas in here, a spread looks pretty good - neutralizing the high vol and even scalping a bit. Paying $0.60 in the 5/7 call spread seems reasonable. The trade doesn't scream good or bad to me.

The 52 wk range for the stock is [$2.85,$7.47], which is pretty wide.

This is trade analysis, not a recommendation.

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*UPDATE S&P 500 (SPY) - Closing the Weeklies Trade

* UPDATE

SPY is trading $106.28. The LIVEVOL™ Pro Summary is below.



Yesterday I wrote this: S&P 500 (SPY) - Trading the Weekly Skews

We analyzed this trade:
Buy 1 SPY (W) 9-03-2010 106 put for $1.59
Sell 2 SPY (W) 8-27-2010 105 puts at $0.31
Buy 1 SPY (W) 8-27-2010 104 put for $0.19

The Livevol Pro Options Tab is included below for closing prices (click to enlarge):



Now we close it for a win:
Sell 1 SPY (W) 9-03-2010 106 put @ $1.40
Let the short 105 and long 104 puts expire worthless.

Disclosure: I did this trade. Paid $1.19 total, sold @ $1.45. I am naked short the Aug 27 (W) 105 puts in the SPY. Trade journal will be posted this Saturday as usual.

Note: If the market collapses in the next 4 hours I'll get crushed to the 2x short puts. It's a reasonable approach to hold until later in the day before closing, or to buy 1 of the 105 puts back at the very least while also holding onto the long 104 put.

This is trade analysis, not a recommendation.

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CVB Financial (CVBF) - A Trader's Odds of the Company Going to Zero

CVBF is trading $6.81, down another 5.3% with IV30™ spiking up 40.5%. The LIVEVOL™ Pro Summary is below.



On 8-10-2010, Business Wire released this news:
CVB Financial Corp. (NASDAQ: CVBF - News) and its subsidiary, Citizens Business Bank, announced today it reported in its recent 10Q filing on August 9, 2010 that it received a subpoena from the Los Angeles office of the Securities and Exchange Commission. The subpoena and the SEC’s corresponding investigation are non-public, which means that the information CVB Financial Corp. provides to the SEC will not be publicized.

The stock gapped down 25% (ish).

Since then there has been a bunch of this news:
... investigations into possible breaches of fiduciary duty and other violations of the law by certain officers and directors.

Today the company has traded over 42,000 options on total daily average option volume of just 730. All but 215 contracts have been puts for nearly 200:1 put:call ratio. The largest trade was a 35,000 lot purchase of the Oct 5 puts for $0.40 with no stock. Color provided by Darren Story of Student Options on the floor. 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 puts are entirely opening (compare OI to trade size).



We can also see that vol has jumped 36 points in Sep and 28 points in Oct (See the top of the Options Tab above).

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 stock's gap down on the first news and the climb in IV30™ today. The options are trading like there is a non trivial probability that this company may actually go away. The Oct 2.5 puts are dime bid, call it fair value at $0.15.

One VERY rough probability measure we make on the floor of bankruptcy as priced by the options is to look at the lowest strike calls, and see the payoff to cost ratio. In this case, if CVBF actually goes to $0, then those puts make $2.35 to a $0.15 bet. In other words, there is ~ 1:16 shot this thing goes bankrupt by October.

This is trade analysis, not a recommendation.

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S&P 500 (SPY) - Trading the Weekly Skews

SPY is trading $106.22. The LIVEVOL™ Pro Summary is below.



This is a continuation of the trades using the weekly options. Previous posts can be found here:

8-24-2010: S&P 500 (SPY) - Scalping Skew in the SPY Weeklies
8-12-2010: SPY - Trading the Weeklies
8-11-2010: Goldman Sachs (GS) - Weekly Trade; Selling Vol Expansion

As I've stated before:
The strategy has worked because we have been able to sell 4 or even 5 options with high vol against one long lower vol option with the first weekly expiration wiping the slate clean for the first two sales. We hunt weekly skew, and then we hunt volatility smile skew.

Selling more options than you’re long does pose tail risk. For this reason, I prefer the SPY to any one company. A myriad of tail events which occur in companies, can’t occur in an index like bankruptcies, takeovers, lawsuits, frauds, special dividends, etc.

Let's look at the SPY skew today (click to enlarge):



Trade Stats
Let's analyze it again.

Buy 1 SPY (W) 9-03-2010 106 put for $1.59
Sell 2 SPY (W) 8-27-2010 105 puts at $0.31
Net debit is $0.97. The individual leg prices don't really matter; let's see how a $1.00 purchase would have done.

For margin requirements and hedging given the wild market of late, purchasing the SPY(W) 8-27-2010 103 puts for $0.08 or the 104 puts for $0.16 could be the wise move.

This is trade analysis, not a recommendation.

Disclosure: I have this position, net debit $1.00 and will probably purchase the SPY (W) 8-27-2010 104 puts soon.

If the market doesn't open gap down tomorrow, I may be quick to sell that protection.

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Interactive Brokers (IBKR) - Masive Bet for New Lows

IBKR closed at $15.97 yesterday. The LIVEVOL™ Pro Summary is below.



The company traded over 181,000 (not a typo) options on total daily average option volume of just 4,229. All but 757 contracts were puts, yielding a 239:1 put:call ratio. The largest trade was a purchase of 100,000 Jan'11 14 puts for $0.30 with a sale of 50,000 Jan'11 15 puts @ $0.60, tied to a sale of 350,000 shares @ $15.90, on PHLX. This color was provided by Darren Story at Student Options on the floor. 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 Jan'11 14 puts were all opening (compare OI to trade size). Based on today's OI, the Jan'11 15 puts had long interest, so the OI has gone to 77,000+ today.



What's interesting about this trade is that first, it's premium neutral (sell 1 @ $0.60 and buy 2 for $0.30). Second, the options leg of the trade held a short delta already (~10), but added more short delta with stock.

Trade Stats
Sell 50,000 Jan'11 15 puts @ $0.60
Buy 100,000 Jan'11 14 puts for $0.30
Sell 350,000 shares IBKR @ $15.90

The PnL chart is included below (click to enlarge).



The spread loses more than $4.3 million at Jan'11 expo on the long strike. The 52 wk range for IBKR is [$15.32,$20.99]. The PnL at those end points is:
PnL($15.32) = $203,000
PnL($20.99) = -$1,781,500
This trade really looks for IBKR to break through it's annual low, and quite substantially (that is, below $14).

The PnL at various points down are:
PnL($10) = $17,065,000
PnL($11) = $11,715,000
PnL($12) = $6,365,000
PnL($13) = $1,015,000
PnL($14) = -$4,335,000

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV120™ - green vs HV120™ - purple). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.



Note how the IV120™ of ~28 (green line) has shot past the HV120™ of 25 (purple line) of late. Interesting bet on the retail arm of Timber Hill.

This is trade analysis, not a recommendation.

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