-------------------------------------------------------------------
For a limited time we are offering a FREE real-time trial to Livevol Pro™ for non-professional traders. You can get your trial by following the directions here: Click for Free Trial Offer
-------------------------------------------------------------------
Cathy Clay from the Livevol Strategy Group found this one. It's a compelling skew play.
The company has traded over 30,000 contracts on total daily average option volume of just 6,809. Calls have traded over 22,000 times for a nearly 3:1 ratio with puts. The Stats Tab and Day's biggest trades snapshots are included (below).
The Options Tab (below) illustrates that the action is in the Jan 38 calls, where over 15,000 have traded on just 2761 OI (so they are likely opening). From what I see, the Jan 38 trades are substantially purchases.
The Skew Tab snap (below) illustrates the vols by strike by month.
Here's where this turns very interesting. The upside in Jan (red curve) is super bid while Feb (yellow curve) is not reacting as much. This opens up a possible calendar. But... even better: Earnings are 2-8-2011. So this allows for a skew scalp and to buy cheaper vol while owning earnings. Nice...
Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).
We can see on the bottom how the IV30™ has now passed the HV180™ and has already been trading above the HV20™. In English: The short-term implied vol is higher than the stock's realized movement over both the long- and short-terms.
We can also see the stock dipping pretty abruptly as of late.
Possible Trades to Analyze
1. Scalp Skew and Own Cheap Earnings Vol
Buy the Jan/Feb 40 call spread and pay $0.40. This sells ~55 vol and purchases ~ 45 vol while picking up earnings.
2. Similar to #1, but pick up a delta while you're at it:
Sell the Jan 40 call @ $0.22 (~55 vol).
Buy the Feb 39 call for $0.79 (~45 vol).
Pay $0.57 to own a delta and earnings vol. Note, this is the way to go if you want to add a delta bet to your vol bet. If you just like the vol scalp, this is not the right move.
3. I don't want to go over board here, but there are a lot of skew trades that get long the earnings juice for a discount to selling the Jan skew. Since there are so many strikes, creativity is a plus here. One point to remember, don't "over trade." Using lots of strikes is ok, but don't commission yourself to death on something that can be relatively simple.
This is trade analysis, not a recommendation.
Follow Live Trades and Order Flow on Twitter: @Livevol_Pro
Legal Stuff:
http://www.livevolpro.com/help/disclaimer_legal.html
No comments:
Post a Comment