Energy XXI (EXXI) - Elevated Vol... Again...

EXXI is trading $29.20, down 2.7% with IV30™ down 1.2%. 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. EXXI has come up on this scan before, most recently on 3-21-2010. You can read that article here:
Energy XXI (EXXI) - Elevated Vol

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20 LTE 10
HV180 - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 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™: 52.80
HV20: 39.03
HV180: 38.14

So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock. We can also see that the implied has tended to trade above the historical for last six months with a few exceptions from late Apr to early May.  As of right now, with the global economy in flux and oil prices moving down, the elevated vol does feel "deserved."

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



We can see Jul, Aug and Sep are all priced at essentially the same vol level, ~53.

Possible Trades to Analyze
1. ATM vol sale:
Selling the ATM straddle or strangle sells ~51 vol and requires that EXXI hold around ($25.80, $32.20) by Jul expo.

2. OTM Vol sale:
Selling an OTM strangle, like 26/32, requires that EXXI stay in ($24.80, $33.20) by Jul expo but collects less premium than the straddle.

Note that both of the trades examined above are naked both the upside and downside.

3. OTM sale and cover:
Doing #2 and purchasing the 25/33 strangle squeezes the PnL zone by ~$0.75 and lowers the MaxGain:MaxLoss ratio to less than 1:1, but eliminates gap risk on both sides.

4.  Skip this one altogether as the elevated vol is based on real world risk (as opposed to fake world?...)...

This is trade analysis, not a recommendation.

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