Goodyear Tire (GT) - Calls Trade Size, OI Opens Ahead of Earnings

GT is trading $16.24, up 0.5% with IV30™ up 5.9%. The LIVEVOL® Pro Summary is below.



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The Goodyear Tire & Rubber Company (Goodyear) is a manufacturer of tires. The Company, along with its subsidiaries, is principally engaged in the development, manufacture, distribution and sale of tires and related products and services worldwide. Eddy Altamirano alerted me this one. Earnings are due out on 4-29-11, I believe (check that).

This is another pre-earnings note. For the naturally curious, check out what VCI today after the earnings call, then look at that pre-earnings order flow here:
Valassis Communications (VCI) - Pre-earnings Order Flow and High Vol

Just a quick disclaimer -- it's pretty rare that the above actually occurs.

GT has traded over 13,000 contracts on total daily average option volume of just 7,112. More interesting, calls have traded on an 11:1 ratio to puts with more than 10,000 calls changing hands on the Jun 17 line -- substantially purchases in my opinion. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the calls are mostly opening (compare OI to trade size). Now, check out that OI in the May 17 calls -- hello... 25,000.. That OI was in the hundreds as of 4-25-2011 and has opened up just in the last 5 days (or whatever). I actually can't tell if it's long or short, though.



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



Notice that the skew chape hasn't changed, other than the 18 line in both months which is slightly bid. Hmm...

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™ is elevated as earnings approach. The stock was stuck in a range for some time and has broken out a bit to the upside. The HV20 feels almost artifically low, and the HV10 is below 20...

Possible Trades to Analyze
Well, ya know. You can bet with order flow or againt it. Or do nothing, I dont see any obvious skew trades.

This is trade analysis, not a recommendation.

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VeriFone (PAY) - Elevated Vol Trend

PAY is trading $53.96, up 0.4% with IV30™ unched. The LIVEVOL® Pro Summary is below.



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VeriFone Systems, Inc. (VeriFone), formerly VeriFone Holdings, Inc., is a holding company for VeriFone, Inc. The Company is engaged in the secure electronic payment solutions.

I found this stock using a real-time custom scan. This one hunts for high vols. I posted an article on TheStreet.com, so now specific trade analysis here.

Custom Scan Details
Stock Price >= $7 <= $70
IV30™ - HV20™ >= 10
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >=10 <=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 PAY 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™: 49.61
HV20: 35.67
HV180: 41.36

So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock. It looks like the implied has been trading elevated since the end of March (ish). Since then the stock has sort of started moving from a 42 vol(ish) to more like mid 30's (HV10, HV20 and HV30 are almost identical).

Let's look to the Skew Tab.



The shape in the front two months is normal -- actually quite pretty, with the downside (OTM puts) vol rising and the upside (OTM calls) falling by strike. The second month is slightly elevated to the front as earnings are due out in the Jun cycle (late May (ish)). Unfortunately, there don't seem to be any obvious skew bumps -- so a straight skew trade doesn't pop out at me.

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



The ATM strangle (52.5/55) is priced at ~$3.95 fair value in May and $6.80 in Jun. Or, in English, the option market reflects elevated risk (high vol).

This is trade analysis, not a recommendation.

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Lubrizol (LZ) - Calls Trading, Is Something Goin' On?

LZ is trading $134.70, up small with IV30™ down 25.6%. The LIVEVOL® Pro Summary is below.



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This company is in the midst of a takeover from Warren Buffet's company for $135/share. The vol is in the single digits, and the stock hasn't budged for a while. All is well and boring, right?... Well, maybe not?

First, the company has traded over 6,000 contracts on total daily average option volume of just 3,375. More interestingly, calls have traded on a 10:1 ratio to puts. Even more interesting, the most active line is the May 135 calls -- substantially purchases. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the calls are mostly opening in May (compare OI to trade size). The Jun calls are also active, but have substantially larger OI.



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



As of right now, the skew hasn't really changed shape. The Jun 145 calls look bid, but that's a 10 lot for a nickel.

So, there you have it. Call buyers coming in pretty large (970 lot, 400 lot, etc). in the front month deal price calls and paying $0.30. Stock volume is still about half of the daily average, so this doesn't feel like calls turned into puts (or straddles).

This is trade analysis, not a recommendation.

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VanceInfo Technologies (VIT) - Vol Explodes, Puts Trade, Theme Continues?

VIT is trading $29.61, down 6.0% with IV30™ up 19.9%. The LIVEVOL® Pro Summary is below.



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VanceInfo Technologies Inc. is an information technology (IT) service provider and an offshore software development company in China. I posted a note on this for TheStreet.com, so no specific trade analysis.

This stock is trading down with vol exploding. I wrote a first article about a possible Chinese fraud bubble, yesterday. You can read that post here:
GREM USA (GFRE) - Is This The Next Fraud Bubble?

The news pushing down VIT from Briefing is this:
---
VanceInfo Tech follow-up: Initial indication is that comments on VIT are coming from a sellside desk simply discussing that VIT is a peer to LFT
---

I'm still stuck on this fraud thing, though. Eddy Altamirano gave me a show on this stock -- brought it to my attention.

Today, VIT has traded nearly 7,000 contracts on total daily average option volume of just 599. Puts have traded on a 23:1 ratio to calls with the action in the May and Jun 25 puts which have traded a combined 4,800x (ish). The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the puts are mostly opening (compare OI to trade size). I'm pretty sure the May puts are purchases, but Jun is a bit ambiguous even though the vol is up substantially in both months.



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



We can see the front month is elevated to the back. Earnings are due out in the May cycle. I do note also that the OTM put side opens up a larger vol difference down the skew. I've highlighted the 25 strike.

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 most notbaly, the vol is exploding. IV30™ was already trading above the historical vols, but now the gap has widened significantly. Hmm...

This is trade analysis, not a recommendation.

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GREM USA (GFRE) - Is This The Next Fraud Bubble?

GFRE is trading $2.62, down 31.9% with IV30™ down 19.8%. The LIVEVOL® Pro Summary is below.



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Gulf Resources, Inc. (Gulf Resources) manufactures and trades bromine and crude salt, and manufactures and sells chemical products used in oil and gas field exploration, oil and gas distribution, oil field drilling, wastewater processing, papermaking chemical agents and inorganic chemicals. As of December 31, 2009, its products have been sold only within the People’s Republic of China.

The news today is stock moving, obviously. Here's a note someone showed me from research company, Glaucus Research. I've included some snippets:

---

Our research included factory visits, examinations of U.S. and Chinese financial filings, and discussions with company representatives, vendors and local government officials.

In our report, we present compelling evidence that a rival, privately-held Chinese conglomerate owned by GFRE’s chairman and founder is actually the legal owner of GFRE’s factories and operating assets. We believe that, given the difficulty of litigation in China and the complex multi-jurisdictional organizational structure of GFRE, shareholders are most likely left without a remedy.

In short, investors in this NASDAQ-listed company are likely holding worthless paper in a shell company.

In addition, we present evidence that GFRE engaged in an inappropriate self-dealing transaction, the details of which GFRE intentionally concealed from the SEC and investors, that GFRE’s largest customer is privately owned by GFRE’s chairman, that GFRE engaged in dubious capital expenditures that may have been a smokescreen for transfers of cash to insiders, and that GFRE is exaggerating the size of the company’s operations. We also present evidence that the company’s CEO has a close relationship with a notorious puppet master of Chinese small cap scams.

<...>

We believe that CHFI was involved in, and may have orchestrated, one of the largest pump and dump schemes in the history of US capital markets.

Source: Gulf Resources: Due Diligence Raises Serious Questions

---

Yikes...

Let's look to the Options Montage from the close of trading yesterday (below).



A few things to note:

1. Vol was up 17.6% (or nearly 32 points).
2. The two most active lines were the May 2.5 and 7.5 puts respectively.
3. The five largest trades were May puts trading on the offer.

And of course, today, the stock catapulted down further with vol collpasing by more than 42 points (or nearly 20%). Let's look to the Options Tab (below).



We can see the OI in the May 2.5 line (both calls and puts) is substantially larger than the other lines. It looks like there were put buyers and call sellers, but not tied to stock (not a conversion).

I'm just speculating here -- but it sort of feels like someone(s) bet that GFRE was coming down hard today and they got short synthetic stock. Alternatively, the call sellers and put buyers were different people (groups). Of course, it's also possible this was coincidence or those trades were actually conversions.

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's abrupt decline from $11.50 (sh) to now $2.50 and possibly headed to $0.

Did someone know? I think someone did -- but I think they published a report with all their findings well ahead of any news and disclosed their positions. This might just be a case of excellent research that went unnoticed. I'm guessing the next note from Glaucus Research might be followed a touch more carefully... Or not...

The real question: Are we at the begining of another fraud bubble? This time directed at China? In a research report I wrote, I coined the phrase "Fraud Swap." I show empirically that fraud clusters and then I show how to price that fraud. I found the results absolutely fascinating, but then again, I wrote it, so...

You can read that report here:
Ophir Gottlieb: The Fraud Swap

This is trade analysis, not a recommendation.

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Valassis Communications (VCI) - Pre-earnings Order Flow and High Vol

VCI is trading $26.68, up 0.8% with IV30™ up 0.3%. The LIVEVOL® Pro Summary is below.



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Valassis Communications, Inc. (Valassis) is a media and marketing services company. The Company’s RedPlum portfolio of products and services delivers value on a weekly basis to more than 100 million shoppers across a multi-media platform, in the mailbox, in the newspaper, on the doorstep, in store and online.

This is another pre-earnings order flow note. The company has traded over 7,400 contracts on total daily average option volume of just 1,475. Calls have traded on a 16:1 ratio to puts with the action in the May 27.5 calls -- 7,000 traded in one print on ISE, looks like purchases. The Stats Tab and Day's biggest trades snapshots are included (below).





The ISE trade went up at 11:22am EST. I've included the Tick Chart from LVP -- check out the stock jump after the trade.



The Options Tab (below) illustrates that the calls are mostly opening (compare OI to trade size). I actually think that the existing OI is short. The large OI in the May 30 calls also looks short.



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



The skew is essentially as "normal" as can be. The upside isn't bid, the downside is. No real adjustment to that large order on any strike in either of the front two months.

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 come down quite significantly from 6 mos. ago. On the vol side, we can see that IV30™ tends to trade above the realized vol of the stock (both long and short-term). Hmm... There was a large stock order about a minute after the option trade -- 287,000 shares. Let's see what happens in a couple of days, but the large trade today did purchase some expensive vol.

This is trade analysis, not a recommendation.

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ZAGG Inc. (ZAGG) - Depressed Vol into Earnings

ZAGG is trading $8.06, up 0.3% with IV30™ up 2.6%. The LIVEVOL® Pro Summary is below.



ZAGG Incorporated (ZAGG) designs, manufactures and distributes protective coverings, audio accessories and power solutions for consumer electronic and hand-held devices under the brand names invisibleSHIELD, ZAGGaudio, and ZAGGskins.

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I found this stock using a real-time custom scan. This one hunts for low vols 60 days out. There's a twist here though -- ZAGG has an earnings cycle in May.

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 ZAGG Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV60™ - yellow vs HV60 - blue vs HV180 - pink).



We can see:
IV60™: 74.75
HV60: 90.94
HV180: 89.70

So, IV60™ is depressed relative to the mid-term and long-term realized movement of the stock. I've included the Skew Tab below as well.



It's a bit odd to me that May and Jun have almost identical vols given that earnings are approaching. Weird, no?...

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



Possible Trades to Analyze
1. Start simple: Buy Jun vol:
Buy the Jun 8 straddle for $1.90 and own ~73 vol in anticipation of a large earnings move.
NB: For a delta bet, you can examine just doing one side of the straddle.

2. Slightly different: Sell Jun / Buy May.
A vol difference should open up between May and Jun (i.e. Jun should be lower than May as earnings approach).
Buy the May 8 straddle and sell the Jun 8 straddle. Ideally, this trade is closed before earnings.

3. Completely backwards:
Sell the May vol -- maybe the discounted risk reflected by the option market is right on.
Sell the May 7.5 straddle @ $1.35.
Buy the May 6/9 strangle or $0.40.
Receive $0.95 and risk $0.55 to bet on ZAGG staying close to $7.50 on May expo (or after earnings).

This is trade analysis, not a recommendation.

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EchoStar Communocations (DISH) - OTM Calls Trade Size Again, Vol Pops, Earnings Near

DISH is trading $24.47, up 2.5% with IV30™ up 8.0%. The LIVEVOL® Pro Summary is below.



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DISH Network Corporation is a pay-television provider, with approximately 14.133 million customers across the United States as of December 31, 2010. This is another order flow note pre-earnings -- notable call side action is building with earnings due out in early May.

The most recent news is that DISH won the bankruptcy auction to buy Blockbuster. Hmmm...

The company has traded over 14,500 contracts on total daily average option volume of just 2,112. All but 715 contracts have been calls, yielding a 19.6:1 call:put ratio. The action is in the May 24 calls where over 10,000 have traded. The largest order was a 5,010 lot, all electronic. I think the order flow is long today, but it's hard to tell with that block. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the calls are mostly opening (compare OI to trade size) if they are one-sided. Also, note that OI in the May 25 calls (7,143). That interest looks long as well, with a chunk opening yesterday. When looking down the entire option chain for DISH, I don't see any OI larger than 4,100 other than the May 24 and 25 calls.



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



The skew looks normal(ish). I do note a small bump up in the May 24 strike possibly reflecting purchases.

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).



There's an obvious vol difference that has opened up between the IV30™ and the short-term and long-term realized vols (HV20 and HV180, respectively). With the stock volume still below the daily average (though it's early), the option trades don't look to be hedged (or at least certainly not turned into synthetic puts). Interesting...

This is trade analysis, not a recommendation.

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