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The stock popped on 10-18-2010 from this news:
KWK was the biggest percentage gainer on the New York Stock Exchange on Monday after the possibility of a take-private deal came to light, but it's debatable how "substantial" the potential premium for any eventual transaction would end up being.
Source:TheStreet.com
Note that the Darden family apparently owns 30% of the stock (source: Yahoo! Finance).
I found this stock using a real-time custom scan. This one hunts for low vols.
Custom Scan Details
Stock Price >= $7
IV30™ - HV20™ <= -8 >= -40
HV180™ - IV30™ >=7
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >= 32
The snapshot of the scan is included (below) in case you want to build it yourself in Livevol Pro™.
The goal with this scan is to identify short-term implied vol (IV30™) that is depressed both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not purchasing depressed IV30™ relative to HV20™ simply because of a large earnings move.
The KWK Charts Tab is included (below). 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.
We can see:
IV30™: ~42.42
HV20™: 61.05
HV180™: 51
So, IV30™ is depressed relative to the short term and long term realized movement of the stock. Keep in mind though, before the pop in stock price the HV20™ was just 27. So the vol isn't an obvious purchase. But, I like the news aspect, so let's take a deeper look.
Finally, let's look to the Options Tab (below).
Possible Trades to Analyze
1. Buy-write. Yes, I know I said the vol was low, but buying the stock and selling the Oct 16 calls is one way to play this takeover/private news.
2. Buy the Nov 15/16 strangle, sell the Nov 14/17 strangle and pay a total of $0.50 (those are hard prices). That turns the MaxGain:MaxLoss to 1:1 and just bets on the stock being outside of [$14.50 ,$16.50] by Nov expo. It does purchase the "lowish" vol, but also hedges nicely the vega that could go down and die the premium that could die to theta.
3. Ok, I ran out of ideas after #2....
This is trade analysis, not a recommendation.
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