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Cameron International Corporation (Cameron) provides flow equipment products, systems and services to global oil, gas and process industries.
I wrote about this company on 6-9-2011, when IV30™ was 38.92 and stock was essentially at the same spot. The note surrounded the vol, which at the time was actually elevated. Today, the vol in the front month is more than 100% higher than the IV30™ in that last article. You can read the prior post, here:
Cameron Int'l (CAM) - Elevated Vol
The stock has been on a substantial slide of late (though so has the entire market). Today, 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 Charts Tab, below (6 mos.). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).
On the stock side we can see that peak on 8-1-2011 with a high price of $58.50. As of today's price the stock has fallen 22% (in eight calendar days). The IV30™ has popped from 38.30 to 64.81 in that same period which is just under a 70% rise. In other words, while the stock has slid significantly, the implied is rising faster than the underlying is moving, creating a vol difference between the implied and the HV measures. Specifically:
IV30™: 64.81
HV20: 52.17
HV180: 34.64
Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line).
The skew for both months is fairly flat with a slight increase to the OTM puts and a slight decrease to the OTM calls. The notable phenomenon here is the vol diff between the two months. Aug vol is priced at 82.35 and Sep is priced at 62.19. Keep those historical vols in mind (above) for a relative comparison between Aug vol and HV.
Finally, let's look to the Options Tab (below).
Potential Trades to Analyze
The front is elevated to the back but the recent stock move justifies that vol. There are a few ways to analyze this elevated vol in the front. Let's examine some.
1. Calendar spread Aug/Sep
Seems reasonable, sell the elevated Aug vol and cover with the still elevated but cheaper Sep vol. The ATM calendar is a gamma play on a stock that's moving in a market that's volatile. Using OTM calendars (two- or one-sided) is another reasonable trade to analyze.
2. Sell elevated vol
Another trade to analyze could be to sell the elevated vol in Aug while covering with OTM options in the same month. This trade gets short vega (as opposed to a calendar which gets long vega).
3. The opposite
The stock is moving, the market is moving, perhaps owning the juice in the front is worth analyzing.
This is trade analysis, not a recommendation.
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