Big Lots (BIG) - To Own or Not to Own, That is the Vega

BIG is trading $42.09, down 1.5% with IV30™ up 9.9%. The LIVEVOL™ Pro Summary is below.



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I wrote an article on this guy for TheStreet.com's OptionsProfits, so no detailed trade discussion here, but -- this is an interesting stock to examine.

I actually found it using on two real-time custom scans. Oddly, the types of trades to analyze are in direct opposition.

1. High vol scan:

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.

2. Second to third month calendar spread:

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 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.

So, the first scan looks to analyze short vega positions, the second scan looks to analyze long vega (long the back month) positions. Hmm...

The BIG 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™: 52.65
HV20™: 25.65
HV180™: 31.70

So IV30™ is elevated relative to the short-term and long-term realized movement of the stock. Note also the huge stock pop on 2-7-2011. That was a response to this news story:
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Retailer Big Lots (BIG) soared 15% just minutes before trading closed on a Bloomberg report that the company had hired Goldman Sachs (GS) to help its “explore strategic options”, including a possible sale.
Source: Barron's, by Avi Salzman
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So, the vol is elevated for a pretty good reason(s). Let's look to the Skew Tab to peak at the month-by-month vols by strike.



And now we can see how the calendar spread scan was triggered. The second month is substantially elevated to the third. Note that BIG has earnings due out in the end of May/early Jun, so the calendar spread not only purchases lower vol, but it also own a vol event (earnings).

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



We can see specifically that Apr vol is 52.65 while Jul is 35.91.

Possible Trades to Analyze
I guess the question is: Is the vol high or low? Would you want to buy vega or sell it?

I guess that was actually two questions...

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