Thursday, September 9, 2010

Newell Rubbermaid (NWL) - Call Buyers Push Skew

NWL closed yesterday at $16.16. The LIVEVOL™ Pro Summary is below.

The company traded over 8,800 options on total daily average option volume of just 646. All but 111 contracts were calls, yielding a 78:1 call:put ratio. The heaviest volume was in the Sep 17.5 calls, and Oct 16 and 17 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 the Oct lines were substantially opening interest (compare OI to trade size). The Sep call OI was 1,510 yesterday and has changed to 2,027 today. I believe that interest is long. So 500 of those calls opened. We can also see that Sep vol was up nearly 8 points (~28%) and Oct vol was up 1.1 points (3.4%) from the buying interest. i.e. Stock up and vol up.

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

The Oct order flow has pushed the upside skew upward, creating a parabola. The nickel bid in the Oct 20 calls makes the upward swing seem larger than maybe it truly is. The 52 wk range for this stock is just [$13.11, $17.96]. That means in order for any of the bid calls (18,19,20) to be ITM by Oct expo., the stock would need to hit a new year high by third week of Oct. That's curious order flow.

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

The stock has stayed range bound for a while now. The IV30™ has popped to 34 while the long term HV180™ is just 27 and the shorter term HV20™ is 27. So, Oct vol is elevated relative to realized. We are projecting earnings after Oct expo, so it's not an earnings vol differnce (I think).

Possible Trades to Analyze
If you're bullish on this name and want to buy calls, selling either the 18 or 20 calls against it could makes sense. A 20 strike call sale is selling 45 vol, but then again, it's a baby call. Paying $0.75 or less in the Oct 16/19 call spread buys 33 (ish) vol and sells 40 (ish) vol. Other than that, naked vol sales may also be up here.

This is trade analysis, not a recommendation.

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