Radian Group (RDN) - Depressed Vol into Earnings

RDN is trading $8.61, down 3.4% with IV30™ up 2.3%. The LIVEVOL™ Pro Summary is below.



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I found this stock using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price >=$7 <= $70
IV60™ >= 1
IV60™ - HV60™ <= -8 >= -40
HV180™ - IV60™ >= 8
Average Option Volume >= 1,200
Industry != Bio-tech

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 intermediate-term implied vol (IV60™) that is depressed both to the intermediate stock movement (HV60™) 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) and want to avoid bio-techs (and their crazy vol).

The RDN Charts Tab (vol only) is included (below). IV60™ - yellow vs HV60™ - blue vs HV180™ - pink).




We can see:
IV60™: ~68.63
HV60™: 80.62
HV180™: 89

So, IV60™ is depressed relative to the intermediate term and long term realized movement of the stock.

Finally, let's look to the Options Tab (below).



We can see that the Nov 7.5/9 strangle is priced at ~73 vol with earnings projected to be in the Nov cycle. RDN historically does have a tendency to be a better sale of vol than purchase into earnings (the one day straddle trade).

Possible Trades to Analyze
1. Buy the Nov 7.5/9 strangle for $1.05. This requires RDN to be outside of [$6.45, $10.05] on Nov expo.

2. Do #1, but sell the Nov 10 calls @ $0.35, netting a $0.70 debit. This requires that RDN be outside of [$6.80, $9.70] on Nov. expo. However, this does limit the upside win to a takeover or big move up.

3. If you have a directional bet, one side of the strangle is reasonable.

4. #3, but first sell the Oct 9 calls @$0.10. If the stock is below the strike on Oct expo (i.e. this Friday), then sell the Nov 10 calls. This could limit the debit to just $0.60, though it carries it's own risks and selling $01.0 options is really a great strategy all of the time.

5. Skip Nov, look at the Jan'10 options. That same strangle is priced ~68 vol. Perhaps Jan'10 is the better vol play.

This is trade analysis, not a recommendation.

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