Staples (SPLS) - Earnings Bet to Upside

SPLS is trading $21.20, up 1.2% with IV30™ up 2.4%. The LIVEVOL® Pro Summary is below.



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Staples has earnings due out 3-2-2011.  Last cycle (11-18-2011) the stock popped 5%.

The company has traded nearly 16,000 contracts in the first two hours on total daily average option volume of just 1,776. The largest print was 9,000 Mar 22 calls bought for 0.30 tied to $21.11 stock. Color from Mike Bristow of the V-trader Group. In total, over 11,000 Mar 22 calls have traded. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the Mar 22 calls are mostly opening (compare OI to trade size). Note also that over 2,000 Apr 22 calls traded as well -- they look like purchases on nearly no OI.



The Skew Tab snap (below) illustrates the vols by strike by month.



The skew is pretty flat, but note the Apr 22 strike is bid up from that order flow.

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 the stock has steadily fallen of late. As the stock has dipped, the IV30™ has shot straight up from ~20 to over 30 (or a 50% increase) in the last two months.

This is trade analysis, not a recommendation.

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Green Mountan Coffeee (GMCR) - Calendar Spread and Earnings Moves

GMCR is trading $41.83, up 0.6% with IV30™ down 0.7%. The LIVEVOL® Pro Summary is below.



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Green Mountain Coffee Roasters, Inc. is engaged in the specialty coffee and coffee maker businesses.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.

Custom Scan Details
Stock Price >= $5
Sigma1 - Sigma2 >= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=70
Sigma1, Sigma2 >= 1

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 back months that are cheaper than the front by at least 8 vol points. 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 selling elevated front month vol simply because earnings are approaching.

Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line).



We can see how the front month is elevated to the back. But, also interesting, we can see Jun is depressed relative to the front two months as well. I mention Jun because it has the next earnings cycle. GMCR is known as a stock that moves rather abruptly on earnings releases. I've included some stats for the last six earnings cycles below.



In English, GMCR has averaged a $3.22 absolute move over the last six cycles or 10.7%.

Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



I've highlighted the earnings cycles. In terms of vol (bottom portion), the IV30™ is elevated to the long-term historical realized vol (HV180™). A sale of that vol seems worth examining.

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



Potential Trades to Analyze
1. Calendar spread Mar/Apr:
Sell the Mar straddle @ $5.30 ~ 70 vol.
Buy the Apr straddle for $7.40 ~ 62 vol.
Pay $2.10 to own Apr vs. Mar.

2. Calendar spread Mar/Jun
Sell the Mar straddle @ $5.30 ~ 70 vol.
Buy the Jun straddle for $10.55 ~ 62 vol.
Pay $5.25 to own Jun vs. Mar. Another reminder -- Jun has an earnings cycle.

3. Tricky Calendar Spread
Do #1. If that works out well, sell April twice (once to undo the long, and a second time to get short). Buy Jun against that short April. If this trade works out (i.e. the stock doesn't move a lot) through Apr expo., it could end up owning the Jun earnings straddle for a steep discount.

4. Complete 180:
Buy the Mar vol naked -- perhaps it's elevated for a good reason.

This is trade analysis, not a recommendation.

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Rambus (RMBS) - Upside Skew Divergence Forms

RMBS is trading $20.88, up 2.9% with IV30™ up 3.7%. The LIVEVOL® Pro Summary is below.



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Rambus Inc. (Rambus) is a premier technology licensing company. The Company is engaged in designing, developing and licensing chip interface technologies and architectures.

RMBS has eternally been embroiled in lawsuits/patent cases. Vol seems like it's always elevated (I know that's tautologically impossible... just work with me...)

The company caught my attention today because of the skew divergence that has opened up to the upside between Mar and the back months (and even an earnings month). Let's look to the Skew Tab, below.



Check out the vol difference in the upside skew (highlighted). In English, the upside calls in Mar (red) have substantially higher vol than the upside calls in Apr (yellow). Let's look to the Options Tab.



In terms of the actual vol differences:
Mar/Apr
23 strike: ~5.5 vol points
24 strike: ~10.0 vol points
25 strike: ~10.5 vol points

It's interesting to note that RMBS has earnings due out in late April -- likely the May cycle. So, a purchase of May funded by a sale of elevated Mar (and then possibly April too) could be a trade to analyze.

In terms of the actual vol differences:
Mar/May
23 strike: ~SAME vol
24 strike: ~5 vol points
25 strike: ~5.5 vol points

So at least the possibility of a vol scalp exists while owning the earnings month vol. 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 large(ish) stock movement on 12-6-2010, and more recently, a stock dip of ~4% over the last week. We can also see the IV30™ rising to the high 60's. One extra note here, the 52 wk. high in IV30™ is 113.78 (i.e. a lot bigger).

This is trade analysis, not a recommendation.

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National Semiconductor (NSM) - Stock and Vol Pop on Call Order Flow

NSM is trading $15.60, up 3.7% with IV30™ up 9.7%. The LIVEVOL® Pro Summary is below.



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National Semiconductor Corporation (National) is a semiconductor company focused on analog and mixed-signal integrated circuits and sub-systems, particularly in the area of power management.

On 11-3-2010, I wrote this post on NSM:
National Semi (NSM) - Calls Bid and Skew Bends.
At that time, the stock was trading ~ 13.50.

The company has earnings due out 3-10-2011. Over 13,000 contracts traded on total daily average option volume of just 2,068. Calls have traded on a 43:1 ratio to puts. The action is in Mar and April 16 and 17 calls as well as the May 17 calls. The direction of order flow is not clear to me, but the rising vol and skew shape makes me feel like these are mostly purchases. The The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that all five of the strikes mentioned above are mostly opening (compare OI to trade size).



The Skew Tab snap (below) illustrates the vols by strike by month.



In Feb the 17 strike shows a skew bent upwards. Apr and May are flattish.

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 the IV30™ spiking of late. The last two earnings cycles for NSM have resulted in stock gaps down. On 9-10-2010, the stock dropped 6.4%, on 12-10-2010, the stock dropped 7.7%.

Possible Trades to Analyze
1. Trade the Mar skew:
Buy the Mar 16/17 call spread for $0.30. This sells the elevated 17 strike relative to the 16 strike. I'd rather pay $0.25 (duh) -- a 4:1 MaxGain:MaxLoss makes this trade much more interesting.

2. Trade the Mar/Apr upside skew:
Buy the Mar/Apr 17 call spread for $0.15. This scalps about 7 vol points, BUT, this trade also sells earnings vol. I don't love this trade.

3. Trade the Apr/May upside skew:
Buy the Apr/May call spread for $0.15. This trade scalps 4 vol points, but doesn't sell earnings vol and pays the same price for another month.

This is trade analysis, not a recommendation.

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Range Resources (RRC) - Calls Trade in Rising Stock

RRC is trading $53.05, up 1.8% with IV30™ unched. The LIVEVOL® Pro Summary is below.



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Another energy company...Range Resources Corporation is an independent natural gas company, engaged in the exploration, development and acquisition of primarily natural gas properties, mostly in the Southwestern and Appalachian regions of the United States.

The company has earnings due out 2-28-2011.

I wrote about this company on 7-28-2010. I noted some call order flow. At the time the stock price was ~$38, and we can see where it is today. You can read the older post here:
Range Resources (RRC) - Aug Options Trade; Skew Bends

Today, the company has traded over 13,000 contracts on total daily average option volume of just 3,868. Calls have traded on a 17:1 call:put ratio. Just over 10,000 Jun 70 calls have traded -- I believe them to be mostly purchases. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the Jun calls are opening (compare OI to trade size). The largest OI I see is 6,471 (Mar 52.5 calls) so the 10,000 or so Jun calls is substantial.



The Skew Tab snap (below) illustrates the vols by strike by month.



The skew doesn't really show a change in shape which I find a bit odd.

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).



The stock popped intra-day on 2-23-11, though finished the day up just ~$0.50. IV30™ is steadily rising into earnings, though the systematic risk is also playing a role.

This is trade analysis, not a recommendation.

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Big Lots (BIG) - Earnings Bet Against Vol

BIG is trading $39.66, down 1.0% with IV30™ up 0.3%. The LIVEVOL® Pro Summary is below.



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Big Lots, Inc. through its wholly owned subsidiaries is a closeout retailer. The Company’s merchandising categories include Consumables, Home, Furniture, Hardlines, Seasonal, and Other. The company has earnings due out in early March.

The company has traded over 8,700 contracts on total daily average option volume of just 2,704. The largest trade accounted for 8,000 contracts -- it was a vol sale:

Sell the Mar 40/42.5 strangle @ $2.80
Buy the Mar 37.5/45 strangle for $1.50

The trade collects $1.30 and risks $1.20, so better than a 1:1 MaxGain:MaxLoss ratio. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action. Mar vol is up slightly (0.2 points), Apr is up a touch more (0.6 points).



The Skew Tab snap (below) illustrates the vols by strike by month.



It's interesting to see that the upside vol is bent up.

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 the stock exploded on 2-7-2011. The news from that day is included below:
---
Big Lots Inc. shares jumped 15% in the last few minutes of trading Monday after Bloomberg News reported that the discount retailer may sell itself. The company is exploring strategic options, including a possible sale, and is working with Goldman Sachs, Bloomberg said, citing an unidentified person with knowledge of the situation.
Source: MarketWatch, By Alistair Barr.
---

The large trade is an interesting one. Obviously if there's any kind of takeover (or takeover rumor) that pushes the stock higher, the trade will lose. The better than 1:1 MaxGain:MaxLoss is nice. Essentially, if you feel like there is better than a 50/50 shot that BIG stays inside the profit zone, the payoff would indicate there's a bit of edge to the trade. I've included the PnL on Mar expo. for the trade, below.



On March expo, this trade wins if BIG is in ($38.70, $43.80). This trade can also win if BIG doesn't move a lot on earnings, vol collapses and it's closed in the first week (ish) of Mar.  Please double check my math, too...

This is trade analysis, not a recommendation.

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Community Health (CYH) - Earnings Bet to Downside x 2.

CYH is trading $37.95, unched on the day with IV30™ up 0.4%. The LIVEVOL® Pro Summary is below.



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Community Health Systems, Inc. is an operator of hospitals in the United States. The company has earnings today AMC.

The company has traded over 6,500 contracts on total daily average option volume of just 1,015. The largest trade was a Mar 35/41 risk reversal. Based on the prices, I believe with a fair amount of confidence that the trade was buy puts/sell calls and pay $0.15 (but I'm not sure). The next largest trades are in the Mar 39 puts. It looks like 1,500 (ish) purchases. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the calls and puts are mostly opening (compare OI to trade size). When looking down the entire option chain for CYH, the Jun 40 calls have the only OI in the 2,000 range. After that, I don't see anything greater than 500. In English, both the risky and the Mar 39 puts are sizable bets to the downside on earnings out today (or a large hedge to long stock).



The Skew Tab snap (below) illustrates the vols by strike by month.



The skew isn't showing any real change in shape, except that the Mar 41 strike looks bid... which is weird considering the 41 strike was sold (or so I think).

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).



Check out the move on 12-10-2010. Here's the news:
---
Wall Street reacted with delight Friday to Community Health Systems Inc.’s $7.3 billion bid for fellow hospital operator Tenet Healthcare Corp., as Tenet jumped 55% and Community shares climbed more than 13%.
Source: MarketWatch, by Russ Britt
---

Let's see how this earnings bet turns out...
This is trade analysis, not a recommendation.

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Energy XXI (EXXI) - Elevated Vol Might Be Cheap

EXXI is trading $33.20, up 1.8% with IV30™ up 1.0%. The LIVEVOL™ Pro Summary is below.



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Energy XXI (Bermuda) Limited (Energy XXI) is an independent oil and natural gas exploration and production company with operations focused in the United States Gulf Coast and the Gulf of Mexico.

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

Custom Scan Details
Stock Price >= $7 and <= $70
IV30™ - HV20™ >= 10
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >=10 and <=60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated 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 selling elevated IV30™ simply because earnings are approaching. The EXXI 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).





We can see:
IV30™: 49.51
HV20™: 31.06
HV180™: 41.14

So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock.

But... the 52 wk high in IV30™ is 92.37. Given the unrest in Northern Africa and the Middle East, the vol in energy companies is pretty fluid right now. What is high? What is low?

Let's look to the Options Tab (below).



Note that Mar vol is just three points higher than Apr, Jun and Sep. I don't see any really interesting trades to analyze in this one yet -- the skew is actually quite normal looking, so no immediate vol scalps are apparent to me and a delta bet feels like a coin flip in either direction.

This is trade analysis, not a recommendation.

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