Wednesday, August 31, 2011

Monster Worldwide (MWW) - Time Spread, Earnings Vol Scalp

MWW is trading $9.44, down 4.7% with IV30™ up 1.2%. The LIVEVOL® Pro Summary is below.



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Monster Worldwide, Inc. (Monster) provides global online employment solution.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. With earnings due out after the Oct expo, this is an interesting one to look at it.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 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.

Let's start with the Skew Tab, below.



I've included the front three months. We can see how elevated Sep is to Oct and Dec. The last two years the Oct earnings cycle for MWW have been 10-28-2010 and 10-29-2009. If it follows the same pattern, the next earnings cycle will be after the Oct options -- so in Dec (and Nov when that month is quoted). Looking to the 9 strike (which is ATM), we can see that both Sep and Oct are elevated to Dec. More on that later...

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 a nice recovery of late in stock price -- sort of emblematic of the entire market's recovery.

On the vol side, we can see a dipping IV30™, which is now right on top of the long-term realized historical vol (HV180). At the same time, the stock has been moving at substantially higher short-term realized vol. Specifically:

IV30™: 65.05
HV20: 116.28
HV180: 64.80

So the stock has moved at approximately twice the implied over the last 20 trading days.

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



Potential Trades to Analyze
All sorts of calendar spreads are reasonable positions to examine. One-sided (calls or puts) and two-sided. An interesting approach could be a Sep/Dec calendar, and if that works, turning that into an Oct/Dec calendar. This position allows two sales of elevated vol versus a "cheaper" purchase of vol that owns earnings. Diagonals can make this trade more delta focused and less gamma risky (selling OTM vs owning ATM).

This is trade analysis, not a recommendation.

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AT&T (T) - DOJ Antitrust, Vol and Comps

T is trading $28.73, down 3.0% with IV30™ popping 17.7% as of ~10:55am EST. The LIVEVOL® Pro Summary is below.







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AT&T Inc. is a holding company. The Company is a provider of telecommunications services in the United States and worldwide.



The news driving the stock today surrounds a DOJ antitrust action blocking the company’s takeover of T-Mobile. A snippet from Briefing.com (www.briefing.com) is include below.



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T is under pressure this morning, down 3.3%, after reports surfaced that the US Dept of Justice has filed to block T's previously announced acquisition of T-Mobile (DTEGY -4.6%). The deal was, for the most part, expected to pass. Conversely, S (+6.6%) is spiking higher on the news. S has been one of the largest opponents of the deal, largely because the potential T/T-Mobile deal would create a virtual duopoly in the US wireless industry that S argued would make it difficult for them to compete. CLWR (+7.6%), a boutique 4G wireless company, is also showing strength on the news. On the other hand, VZ (-0.8%) is falling on the news, after opening up higher, possibly because it could be viewed as a target by the DOJ as the country's largest wireless company.

Source: Briefing.com

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While a bunch of companies were mentioned in that news, let’s focus on T and start with the Tick Chart for today only.







The top portion is the stock price, the bottom portion is the Sep monthly vol. The point here is simple, the stock and vol reacted abruptly on first announcement and now may have found a short-term equilibrium.



Let’s turn to the Skew Tab, next.







Note that the two expirations are the Sep 2 weeklies and the regular way Sep monthly. We can see the elevated vol in the weeklies to the monthlies. Specifically, the Sep(W) ATM vol is priced at ~34, while the Sep monthly ATM vol is priced at ~26. As of this writing, the weekly expiration vol is up 14.2 points (+63%) while the monthly expiration is up 6.1 points (28%). It’ that difference in vol gains today that accounts for the expiration-to-expiration vol diff (i.. the eight point vol diff comes from the move today).



Now let’s turn to the Charts Tab (6 months) below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).







We can see pop in the implied as it is now just below the short-term historical realized vol. Both of those measures are well above the long-term realized vol. Specifically:



IV30™: 27.54

HV20: 28.88

HV180: 16.56

HV10: 24.70



It’s worth noting that HV is calculated close-to-close, so the move today in T stock will not be reflected in HV until tomorrow.



Finally, let’s turn to the Options Tab.







I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. But, the position that had me most interested was the calendar spread as the vol diff is due entirely to the news that just came out.



What I don’t like about the spread is that should the stock recover the $0.89 it’s down today, and vols remain the same through Sep (W) expiration (i.e. Friday at close of this week), those Sep monthlies would be worth just a small amount more than the debit put on today. If the vol comes down in the Sep monthlies, those options would be worth the debit paid or less for the spread.



There’s a distinct possibility that the vol comes down in the back, and even if the weekly options expire worthless (i.e. shorts collected the full premium), that long put in the back may be a loser to the total debit. Having said that, I do believe that weekly vol collapses a bit -- especially in the downside puts.



This is trade analysis, not a recommendation.



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Tuesday, August 30, 2011

CoreLogic (CLGX) - Timely Trade or Front Running Insider?

CLGX is trading $11.29, up 28.4% with IV30™ up 47.7%. The LIVEVOL® Pro Summary is below.



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CoreLogic, Inc., formerly The First American Corporation, is a provider of property, financial and consumer information, analytics and services to mortgage originators and servicers, financial institutions and other businesses, government and government-sponsored enterprises.

Jeff Kearns at Bloomberg brought my attention to this one and has a nice article here:
CoreLogic Option Trading Jumped Before Disclosure of Adviser to Weigh Sale

The company is up on this news:

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Shares of Central European Distribution Corp rose as much as 40 percent after private investor Mark Kaufman reported a 9.6 percent stake in the Polish vodka maker.
Source: CEDC shares up 40 percent as investor picks big stake
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Now here's where it gets... interesting...

The company averages just 134 option contracts traded a day -- of which, just 61 are calls. The Livevol® Pro Stats Tab (a snippet of it) is included below.



Yesterday, the company traded 1,229 options -- all of them were calls, and all but 15 were concentrated on purchases in the Oct 10 and Jan'12 10 calls. Yeah, that's 1,214 contracts on daily average volume of 61, all on the long side, all in the calls, all in the same strike, all OTM. The options montage from yesterday (from the Charts Tab) is included below.



We can see there was some existing OI in both those lines. So, maybe the longs were just closing... right?... I've included the Options Tab snap as of today, below.



We can see the OI went from 720 (yesterday) to 1274 today in the Oct 10 calls. i.e. that's a 554 contract increase (on volume of 555). Similarly, we can see the OI went from 638 to 1238 in the Jan'12 10 calls. i.e. that's a 600 contract increase (on volume of 659).

The vast majority of those trades occurred in a four minute period, from 2:35p - 2:39p EST. At 4:01p the news was released. So, a 2000%+ volume day in two calls on the same strike, less than 90 minutes before an announcement, all done within 4 minutes.

Hmmm... In terms of PnL,this is what I see:

Oct 10 calls: 554 bought for ~ $0.14, are worth $1.80 today. That's 554*($1.80 - $0.14)*100 = $91,964 made on a $7,756 bet.

Jan'12 10 calls: 600 bought for ~ $0.40, are worth $2.30 today. That's 600*($2.30 - $0.40)*100 = $114,000 made on a $24,000 bet.

In total, I see a $205,964 profit on a $31,756 bet or ~650% in 1.5 hours. Nice... or not...


This is trade analysis, not a recommendation.

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Barclays (BCS) - Calendar Spread, Stock Bottom and Vol Diff

BCS is trading $10.73, down 1.3% with IV30™ up 2.7%. The LIVEVOL® Pro Summary is below.







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Barclays PLC (Barclays) is a global financial services provider engaged in retail banking, credit cards, corporate and investment banking and wealth management. The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. Taken together with the stock and vol charts, this is an interesting one to examine.



Custom Scan Details

Stock Price GTE $5

Sigma1 - Sigma2 GTE 8

Average Option Volume GTE 1,000

Industry isNot Bio-tech

Days After Earnings GTE 5 LTE 70

Sigma1, Sigma2 GTE 1



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.



Let’s start with the Skew Tab.







The shape of the skew for both months is similar – normal in that it’s bid to the downside. The scan is triggered because of the vol diff between Sep and Oct.



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).







Starting with the stock portion, we can see the stock drop of late. What caught my attention was the low print in stock, which was $9.53. More on that in a sec…



Turning to the vol side, we can see while the IV30™ has popped significantly, the realized short-term movement of the stock has actually been well above that level. Specifically:



IV30™: 76.61

HV20: 113.24

HV180: 50.30

HV10: 79.35



Interestingly, the IV30™ is now closest to the HV10 (the day trading day realized historical vol).



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







I wrote about this one for TheStreet.com (OptionsProfits), so no specific trade analysis here. But taking advantage of the vol diff between the front two months to the downside while also eyeing that $9.53 52 wk. low is an interesting position to examine whether that be in a plain vanilla calendar, or some sort of diagonal spread.



This is trade analysis, not a recommendation.



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Monday, August 29, 2011

Universal Display (PANL) - Exploding Stock, Depressed Vol

PANL is trading $49.99, down 3.3% with IV30™ up 0.3%. The LIVEVOL® Pro Summary is below.



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

Custom Scan Details
Stock Price GTE $7
IV30™ - HV20™ LTE -8 GTE -40
HV180™ - IV30™ GTE 7
Average Option Volume GTE 1,200
Industry != Bio-tech
Days After Earnings GTE 32

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 short-term implied vol (IV30™) that is depressed 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 purchasing depressed IV30™ relative to HV20 simply because of a large earnings move.

PANL actually violates the "Days After Earnings" filter, but the move of late isn't earnings related.

The PANL 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).



The stock has been exploding of late. On 8-8-2011, the stock was trading $22.73, as of this writing, with the stock price at $49.99, that's a 120% increase in 21 calendar days.

Interestingly, the IV30™ is only 96.19 while the stock has been moving at a 179 vol over the last 10 trading days and 165 in the last 20 trading days. The stock has moved 3.3% today, and that isn't included in the HV measures as HV is calculated close-to-close. In English, the stock has moved at a substantially higher realized vol than the implied.

We can see:
IV30™: 96.19
HV20: 165.05
HV180: 85.06
HV10: 179.39

Here's a snippet from The Motley Fool which explains some of the stock's recent move:

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What: Shares of OLED technology developer Universal Diplay jumped as much as 11.5% in intraday trading on heavy volume.

So what: This, my friend, is a momentum move of the purest kind. Universal Display had jumped more than 10% on three out of four trading days this week, all on reasonably substantial news, and now investors are piling on to ride this just-discovered bandwagon. All told, share prices have spiked by nearly 90% this week.

Now what: To recap this week's action, Universal Display presented an important license deal with top customer Samsung, saw LG Electronics introduce a high-volume OLED smartphone, and heard Corning (NYSE: GLW ) commit to producing glass for big-screen OLED televisions.
Source: Universal Display Shares Surged: What You Need to Know, by Anders Bylund.
---

Let's look to the Skew Tab, below.



The front is elevated to the back, with an interesting vol diff opening up on the 60 strike between the front two months. Oct shows a notable upside skew to the 65 and 70 calls, creating an intra-month call spread purchasing lower vol than it sells, which is "unusual" when compared to "normal" skew. You can read about normal skew and why it exists here:
Understanding Option Skew


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



Note that the Sep 70 calls are priced at ~ $0.40 fair value -- so another 40% up from here, after the recent 120% move up. The ATM straddle is priced at ~$9.50 -- that's less than three calendar weeks -- so, while the implied is trading well below the short-term realized vols, it's still over 100 for Sep options.

This is trade analysis, not a recommendation.

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IMAX (IMAX) - Calendar Spread, Rising Vol, Implied v. Historical Comps

IMAX is trading $17.76, up 9.9% with IV30™ up 8.5%. The LIVEVOL® Pro Summary is below.



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IMAX Corporation together with its wholly owned subsidiaries, is an entertainment technology companies, specializing in motion picture technologies and presentations.

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 GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 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.

Let's start with the Skew Tab (below).



We can see the substantially elevated vol in Sep to Oct. Within Sep, there is an interesting upside skew going from the 20 strike up through the 22 strike. There's also an interesting spike to the Sep 19 calls while there's a small dip down to the Oct 19 calls, making a 23 vol point diff between the two months on that line.

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).



The stock dropped from $38 on 6-1-2011 to $13.70 on 8-22-2011, or a 64% drop in less than three months. An earnings report and stock drop off of it is included in that price decline. Since 8-22-2011, the stock has recovered a bit to now over $17.50.

On the vol side, we can see the IV30™ climbing from 41.05 (on 6-1-2011) to now just under 83. In English, as the stock has dipped 60% (ish), the implied vol has doubled. Interestingly, the short-term historical vol (HV20) is actually above the implied. The long-term historical vol (HV180) is still in the upper 50's. Specifically:

IV30™: 82.98
HV20: 99.17
HV180: 57.92

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



Potential Trades to Analyze
Vol sales and vol purchases seem reasonable. That is, The implied is trading below the HV20, so a salient argument could be made to purchase vol -- the stock has moved ~10% today. Then again, given the long-term HV, a vol sale also seems like a reasonable trade. Let's focus on some calendar spreads -- a vol sale and purchase.

1. ATM Calendar
The trade with the most short gamma risk is the ATM calendar (duh). That 17.5 Sep straddle is priced at ~94 vol. The ATM Oct straddle (18 strike) is priced at ~73 vol.

2. OTM Calendar Spreads
a. Calls: The 19 strike call spread shows a 23 vol point spread.
The 20 strike shows a 21 vol point spread.
b. Puts: The 16 strike shows a 23 vol point spread.
The 15 strike shows 20 point vol spread.
One or two-sided seem reasonable positions to examine.

3. Diagonal Calendar Spreads
For a calendar that takes on a delta, selling the higher (lower) strike with the calls (puts) gets a vol diff and some deltas.

This is trade analysis, not a recommendation.

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Thursday, August 25, 2011

Liz Claiborne (LIZ) - Call Buyers... Again...

LIZ is trading $4.46, up 3.6% with IV30™ down 3.4%. The LIVEVOL® Pro Summary is below.



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Liz Claiborne, Inc. (Liz Claiborne) designs and markets a portfolio of retail-based brands, including JUICY COUTURE, KATE SPADE, LUCKY BRAND and MEXX.

This is an order flow note that has lead me to a trade. Let’s start with some option volume details. The company has traded 4,255 contracts on total daily average option volume of just 1,344. Every option has been calls; i.e. no puts have traded. The largest trade was a purchase of Sep 5 calls ~4000x for $0.20 (the trade broke into a 2,300 lot print and then several hundred+ prints). 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). But check out the OI in the Oct 6 calls; it’s over 16,000. I see some very active days where that OI popped several thousand on 7-15-2011 and 7-27-2011. Both of those OI rise days look like opening purchases. My best guess is the Oct 6 call OI is long and accumulated over the last month (ish).



Let’s turn to the Skew Tab snap (below) to examine the vols by strike by month.



We can see the skew between the four and five strikes for both months is essentially flat. Sep is elevated to Oct by about six vol points. Oddly, the vol dips to the Oct six calls, which is “normal” skew shape, but abnormal given the order flow in my opinion.

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 massively volatile stock price, coming from as high as $6.74 on 8-1-2011 to now below $4.50 in less than four weeks. We can also see the stock hit a bottom on 8-19-2011 of $4.02, and has since recovered (a bit). That price action includes a gap up on earnings. Hmmm…

I wrote about this one for TheStreet.com (Options Profits), so no specific trade analysis here, but, the order flow in this one is compelling, and the stock drop but recent recovery makes the ~$4 level feel safe(ish); like it would take a catastrophe to push the stock to say $3. This is when the stock dips to $1 and I feel stupid...

This is trade analysis, not a recommendation.

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Wednesday, August 24, 2011

Computer Sciences (CSC) - Calendar Spread and Skew Kinks

CSC is trading $29.14, up 0.4% with IV30™ unched. The LIVEVOL® Pro Summary is below.



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Computer Sciences Corporation (CSC) is engaged in the information technology (IT) and professional services industry.

Today CSC came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. For the first time in a while, we'll look at a non-financial, non crazy vol, non-Chinese stock. Just a plain vanilla techy, that has some interesting term-structure vol.

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

Let's start with the Skew Tab.



We can see the vol diff between the front two months. In particular, there's a little kink up in the Sep 32.5 calls corresponding with a little kink down in the Oct 32.5 calls. The company last reported earnings this month, so as far as i can tell, there should be no earnings vol in either of these expos.

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).



The stock has gapped down a couple times. Once on 5-3-2011 and then again on 5-26-2011, the latter was off of an earnings report. On 5-2-2011, this was a $51 stock. Today, it's trading in the high 20's.

On the vol side, we can see the elevated recent movement (realized vol). The implied has traded up with the realized volatility, but is still priced in between the short-term and long-term HVs. It is worthy to note that before the most recent earnings release, the HV20 was ~20 -- so very low vol relative to both the IV30™ and HV180.

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



Potential Trades to Analyze
Without getting too fancy, here are a few sort of plain vanilla calendar spreads to examine.

1. Sep/Oct call side
The 32.5 line vol diff between Sep and Oct is ~11.5 vol points.

2. Sep/Oct put side
The 27.5 or 25 line vol diffs are ~7 vol points.

3. Sep/Oct ATM
For a position that bets on the HV20 returning to the low 20's, an ATM or slightly OTM calendar (straddle or strangle) is a reasonable position to analyze.

This is trade analysis, not a recommendation.

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US Banks - Are They Collapsing?

I posted this to TheStreet.com a few days ago, thought it might be an interesting perspective. It's a continuation, or expansion really, of a few posts I wrote on BAC and USB.

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Source: TheStreet.com (OptionsProfits)

Let’s talk about banks. Not loans, and mortgages, ATMs and tellers, ‘n stuff. Let’s talk about the possibility of catastrophic failure – the possibility that banks return to levels not seen in three years. Not seen in 15 years. Maybe, not seen ever.

Why? Is it because I think that’s gonna happen? No. It’s because the market is starting to price that possibility – and I don’t mean by year end, I mean in, in some cases, within a few weeks.

Let’s start with a composite stock chart of BAC (red), WFC (blue), C (yellow), JPM (green) and a wall street darling, USB (orange).



We can see that BAC and C are performing the worst. I wrote a fairly detailed article about BAC on 8-9-2011, where I demonstrated, through some back of the envelope math, that the market was essentially pricing a 1/7 chance that BAC stock goes worthless by Jan 2012. But as we can see in the chart above, I was picking the worst performing company in a poorly performing and fear drenched industry. Just rattling the cages, right?

Ok, let’s take the opposite approach and look at USB. The best performing of the group, almost unched over the last two years. There was an interesting article through the New York Post praising USB’s CEO, Richard Davis. The article is titled, “Small bank giant: US Bancorp outperforms all Wall St. titans,” and can be read in entirety here: http://www.nypost.com/p/news/business/small_bank_giant_VSJyWihVurt0nyScPwSarJ#ixzz1Vm9eoPuJ

Here are some snippets:
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Forget JPMorgan Chase’s Jamie Dimon. Wall Street has a new golden boy: US Bancorp’s Richard Davis.

At a harrowing time for financial firms, when most banks find themselves battered and bloodied due to a raft of new regulatory changes under Dodd-Frank and an economy on the brink of a second recession, Davis’ bank is separating itself from the pack.

Indeed, net income in the second quarter for the Minneapolis-based bank was up 57 percent to $1.2 billion, compared to $766 million in the same period a year ago.

And so far the bank, which is the fifth largest in the nation, is No. 1 in terms of performance, or return on equity -- one measure of performance.
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Cool, that bank is doing well. No worries there, right? Let’s start with some options analysis. First, the Livevol® Pro Symbol Summary. USB is trading $20.80, up 1.2% with IV30™ down 7.6% today.

Now, let’s turn to the Skew Tab.



We can see a rather pretty skew shape for both months -- consistent and smooth. I don't like either of those adjectives when looking for a skew trade, but that's what we got. Obviously, the front is elevated to the back (red line is above the yellow line).

I believe the next earnings cycle for USB will be after the Oct cycle (i.e. in Nov), so owning Oct doesn't own an earnings report. For what it's worth, the Dec cycle is priced below both Sep and Oct (in terms of vol) for you vega buyers out there. The point here, the skew is not crazy out of line to the downside (or upside) – everything looks “nice and neat.” Even, “orderly.” Orderly…

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 almost obligatory stock drop, vol spike and implied trading below short-term realized vol. This is how a number of stocks look right now on the vol side. So far, nothing looks too worrisome – it’s a down market, no big deal…

But, here's where it gets a little more interesting -- if for nothing else, from a market sentiment point of view. Let's start with the Options Tab (below).



Note the 15 strike puts in Sep. Those are priced at ~87 vol, or ~$0.16 fair value. And why does that matter? Well, the 52 wk range in USB is [$20.15, $28.66]. Keep in mind, those Sep 15 puts are winners to the longs on expo "iff" USB stock dips to $14.84. Yeah, that's a lot lower than the 52 wk low. In fact, USB hasn't been below $20 in more than 2 years. I've included a long-term stock chart for USB from Yahoo! finance, below.



I've drawn a line at $15. The only time USB breached that level was at market bottom in 2009. Before that, it was September... of 1997...

So we have the best performing bank of the big five, with a newly touted “Golden Boy” CEO (granted, he hasn’t appointed himself, so let’s not pile on him for something he had nothing to do with). And even in this stock, the options are pricing a realistic possibility that the stock his 2.5 year and maybe even 15 year lows… by September 16th.

The point is, the financial companies, banks in particular, have near-term options priced for a legitimate possibility (or fear) of a drop akin to the 2009 massive market bottom -- which in some cases were bank stock levels in the late 90's.

So is the sky falling? I dunno – you tell me. For those that are willing to bet that it isn’t (at least in the next four weeks), “normal" calendar spreads (for example) are on the board with the possibility of adding naked short puts at levels like... well, like $15 for USB.

What about the worst performing of the group, BAC? The Sep 3 puts are priced at $0.07 x $0.08. When was the last time BAC traded at $3. Drum roll please…

… Never.

Is it possible that it will? Yeah, it is, and the option markets reflect those odds in absolute terms. Just out of curiosity, if the sky really does fall, what do we see when we look up?

This is trade analysis, not a recommendation.

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