I found this company using a custom real-time scan I developed on Livevol Pro. The details are included below:
Time Spread Scan Details
Stock Price >= $5
Avg. Option Volume >= 1500
Industry != Bio-Tech
Sigma1 - Sigma2 >= 7
Sigma1 >= 1
Sigma2 >= 1
Days After Earnings <= 10 >= 70
Lets take a look at the Skew Tab first (click to enlarge). In this case, I'm interested less in the shape of the skew than a simple graphical representation of the vol diffs ATM.
I've highlighted the month to month vol difference. The company had earnings 7-28-2010 AMC, so a reasonable projection is that the next earnings release will be after Oct expo which is 10-15-2010. That means a time spread not only buys low vol against selling high vol, but it also gets the benefit of buying a vol event (earnings).
Let's finally look to the Options Tab for prices (click to enlarge).
It looks like with some reasonable liquidity an Oct 17.5 straddle could be sold @ $3.05 while the Nov 17.5 straddle could be purchased for $4.60, or a total of a $1.55 debit. Keep in mind, time spreading by purchasing the back is long vega. That means a takeover will likely be a large loser. The ideal situation here is that CML pins on the strike at Oct expo, yielding a cheap long straddle in Nov with an earnings event. The worst case scenario is a large move away from the strike pre Oct expo. A rise in vol without a stock move is also a winner.
A few other things to note.
IV30™: 84.22
HV20™: 100.80
HV180™: 76
So this stock moves pretty big and both the 86 vol sale (Oct) and 79 vol purchase (Nov) are substantially less than the recent short term realized vol. A Nov ATM straddle purchase in and of itself looks somewhat reasonable.
This is trade analysis, not a recommendation.
Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html
No comments:
Post a Comment