Thursday, September 16, 2010

Invesco (IVZ) - Playing Vol Backwardation and Long Vega

IVZ is trading $20.91, up small with IV30™ down 0.3%. The LIVEVOL™ Pro Summary is below.

The company has traded over 8,200 options on total daily average option volume of just 418. All but 234 contracts went up in a single put spread; buying Jan'11 20 puts and selling Oct 20 puts paying $1.10 net. 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 at least partially opening (compare OI to trade size). You can also see that OctIV < Jan'11IV < Apr'11IV.

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

This more clearly demonstrates the month to month vol diffs with the back getting more expensive than the front.

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 IV90™ - green vs HV90™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

I've highlighted the vols. This chart makes the bet a little more clear. The long term historical vol is 43. The 90 day historical is 45. Both of the IV's traded are below the historicals. IV30™ (sold) is 37 and IV90™ (bought) is 39.

This is an interesting trade as it gets long vega which is slightly depressed. If IVZ hangs around $20 by Oct expo, this trade could turn out very well. Further, if the vol elevates in the same pattern - that is, the back goes up more than the front, this bet also wins nicely. If backwardation eases up, this trade can lose pretty fast.

This is trade analysis, not a recommendation.

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