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The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the second and third months.
Custom Scan Details
Stock Price >= $5
Sigma2 - Sigma3 >= 7
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 and <=50
Sigma2, Sigma3 >= 1
The stock also has an elevated front month vol which makes this an interesting one to examine.
The goal with this scan is to identify third months that are cheaper than the second month by at least 7 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 second month (yellow line) relative to the third month (green line). We can also see the front month vol is elevated to the second.
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).
We can see the stock collapsed on the earnings release, so the HV20™ is obviously uber-elevated.
Finally, let's look to the Options Tab (below).
Potential Trades to Analyze
1. Calendar spread the second and third months:
Sell the Mar 9 straddle @ $1.55 (~66 vol).
Buy the Jun 9 straddle for $2.60 (~62 vol).
The added benefit here is that the Jun options have an earnings cycle (probably in late April (ish)). Another twist here is to sell the Feb 8/10 strangle rather than the straddle as the both OTM wings are trading at higher vol than the ATM (see the skew snapshot above).
2. Do a staged multi-month calendar:
Sell the Feb9 straddle @ $0.80 (~70 vol).
Buy the Jun 9 straddle for $2.60 (~62 vol).
If all works out well on Feb expo, you may be able to sell the Apr ATM straddle (or the Mar ATM straddle or both). The goal being to own a Jun straddle funded by more than one month of short straddles, while never being being short more options than you're long at any one moment.
This is trade analysis, not a recommendation.
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