Risk Laboratory: Ophir Gottlieb

Friday, February 4, 2011

Nokia (NOK) - Calendar Spread Opens on Vol Spike

NOK is trading $10.98, down 1.9% with IV30™ up 0.3%. The LIVEVOL™ Pro Summary is below.

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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 >= $5
Sigma1 - Sigma2 >= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=70
Sigma1, Sigma2 >= 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.

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). I have also included the third month (green 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).

We need to stop for a sec here to note that the IV30™ is elevated. In English, the options market is reflecting the risk of near-term volatility. We can see that the IV30™ dropped off of earnings (as expected), but it has now re-traced that drop nearly 50% to the upside.

There have been pretty serious articles of pointing to the poor R&D investments of late. Bernstein analyst Pierre Ferragu said, “at this stage, we believe that even a good success of Symbian^3 would barely stabilize the business,” he says. “A real comeback will need much more effort … and a lot more time, unlikely to happen in the next couple of years, in our view.”
Source: WSJ.com.

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

Potential Trades to Analyze
1. ATM Calendar:
Sell the Feb 11 straddle @ $0.84 (~48 vol)
Buy the Mar 11 straddle for $1.25 (~42 vol)
Pay $0.41 to own the back.

2. OTM Calendar:
Sell the Feb 10/12 straddle @ $0.24 (~52 vol)
Buy the Mar 10/12 straddle for $0.52 (~42 vol)
Pay $0.28 to own the back. This is a cheaper bet with a bigger vol scalp.

3. Flip it around and bet with the market:
Buy the Feb 10/12 strangle for $0.25 and bet on an abrupt move in the next few weeks.

This is trade analysis, not a recommendation.

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Thursday, February 3, 2011

Yahoo! (YHOO) - Calls Trade, Spec to Upside Pushes Skew

YHOO is trading $16.80, up 1.4% with IV30™ up 8.1%. The LIVEVOL™ Pro Summary is below.

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The Options Tab (below) illustrates the action on all the lines in the front three months. We can also see that vol is up across the board (top of the image in green font), with Mar and Apr showing the largest vol increases

As I mentioned above, the biggest trade was a call spread tied to stock. I have included the PnL chart below.

This is a bet that YHOO goes to $20, but gives up some upside above that to secure some downside protection.

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

We can see the upside skew has gone bid and that a vol difference is opening up between the front month and the back months to the upside. It's also interesting to note that the ATM vol in Feb is below the ATM vol in Mar and Apr, but the call skew (upside call vols) is above Mar and Apr. Hmmm...

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).

YHOO likes to have these very exciting days in the options market with call volume soaring, but of late it just kinda sits around the same price. The implied vol does have a tendency to sit above the short-term and long-term realized movement of the stock. Who knows what happens this time.

Possible Trades to Analyze
1. Trade the Feb/Mar call skew:
a. Buy the Feb/Mar 19 call spread for $0.18. This buys 41 vol vs a 48 vol sale.
b. Buy the Feb/Mar 20 call spread for $0.11. This buys 44 vol vs a 57 vol sale.

2. Trade the Feb/Apr call skew:
a. Buy the Feb/Apr 19 call spread for $0.33. This buys 37 vol vs a 48 vol sale.
b. Buy the Feb/Apr 20 call spread for $0.20. This buys 39 vol vs a 57 vol sale.

3. Another twist:
Sell 1 Feb 18 call @ $0.17
Buy 2 Feb 19 calls for $0.10.
Pay $0.03 and bet on a takeover or stock move above $19.03. Note that the MaxLoss on this is NOT $0.03, it's $1.03 b/c of the offset strikes.

This is trade analysis, not a recommendation.

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Kohlberg Kravis Roberts (KKR) - Stock Rallies and Vol Jumps

KKR is trading $16.25, up 1.7% with IV30™ popping up 19.6%. The LIVEVOL™ Pro Summary is below.

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Not that you need me to post it, but: Kohlberg Kravis Roberts & Co. is a private equity firm specializing in acquisitions, leveraged buyouts, management buyouts, and mezzanine investments in large cap companies.

There's an interesting story about a tax fine problem that could benefit KKR. I've included the link: Dogan Yayin-court rulings in tax dispute upheld

The company has traded over 13,000 contracts in the first hour (ish) on total daily average option volume of just 540. Calls have traded on a 2.6:1 ratio with puts. The action is in the Feb 15, 17.5 and Mar 15 calls as well as the Mar 17.5 puts. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that puts are mostly opening (compare OI to trade size) as are the Feb 17.5 calls. My best guess is that the Feb calls are purchases (both lines), the Mar puts are purchases and the Mar calls are sales (less sure about this one).

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

We can see the vol difference opening up between the front and back months. In particular, the 17.5 calls have a substantial upside skew in Feb.

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 popped of late, including an earnings cycle. On the vol side (bottom), we can see the IV30™ has now gone well above the long-term and short-term realized.

Possible Trades to Analyze
1. Trade The Feb/Mar upside skew:
Buy the Feb/Mar 17.5 call spread for $0.20. This is about a 10 point vol scalp.

2. Trade the Feb/Jun upside skew:
Buy the Feb/Jun 17.5 call spread for $0.65. This more like a 14 point vol scalp, but obviously it's much more expensive than #1, while gaining several months in time value.

3. Trade the Feb/Mar downside skew:
Buy the Feb/Mar 15 put spread for 0.20. This is about a 7 point vol scalp.

This is trade analysis, not a recommendation.

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Wednesday, February 2, 2011

Salix Pharma (SLXP) - Stock Drops, Vol Explodes on... Something...

SLXP is trading $40.31, down 2.7% with IV30™ exploding up 41.3%. The LIVEVOL™ Pro Summary is below.

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The company has traded 16,169 options on total daily average option volume of just 536. Puts have traded over 15,000x yielding a nearly 40:1 ratio with calls. The action is in the Mar options - over 10,000 Mar 37 puts have traded. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Mar 37 puts are opening (compare OI to trade size). The Mar 40 puts look like purchases as well, the Mar 35 are less clear to me.

280,000 shares of stock traded (were purchased) with these puts. The breakeven low price is ~ $30.30, on the high end it's ~$51.50. I've included the PnL on Mar expo for these puts and stock, below.

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

What I see first here, is that the front month (red) is well below the back two. Clearly something is priced into the Mar options - some sort of news, decision, FDA conference, etc. I also note that the Mar 22.5 puts are $0.30 bid - whoa...

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 vol. Holy momma... That is a vol spike. Yesterday IV30™ jumped over 20%, and as of this writing it's up another 40% on top of that today.

Possible Trades to Analyze
No specifics here, but just note how wide the markets are. Please don't trade the NBBO the bad way. Limit orders are a must.

This is trade analysis, not a recommendation.

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ON Semiconductor (ONNN) - Calls Trade into Earnings

ONNN is trading $11.59, up 2.0% with IV30™ up 8.9% coming into earnings tomorrow BMO. The LIVEVOL™ Pro Summary is below.

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ON Semiconductor Corporation (ON Semiconductor) is a global supplier of power, analog, digital signal processing, mixed signal, advanced logic, data management semiconductors, memory and standard semiconductor components, and integrated circuits.

The company has traded over 8,700 options in the first two hours on total daily average option volume of just 1,702. All but 87 contracts have been calls, yielding a nearly 100:1 call:put ratio. The action has been long in the Feb 11 and Mar 11 calls.

The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Mar calls are mostly opening (compare OI to trade size). The Feb 11 calls actually look like closing trades - that is, I believe the existing OI is short and the trades today are long.

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

The front is elevated to the back as expected before earnings. The upside skew in Feb is unaffected by the order flow, but Mar definitely shows a bend up, both on the 11 line and the 13 line. The 12 strike is depressed - and that means a potential trading opportunity to analyze.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV30™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

The stock has been going straight up - good for ONNN! On the bottom portion we can see the IV30™ tends to trade above both the short-term historical (HV20™) and the long-term historical (HV180™). The vol is exploding into earnings - though it seems to be sitting nicely right where it went for the last earnings cycle. How nice and consistent, makes my OCD brain very pleased.

Potential Trades to Analyze
1. Trade March upside skew:
Buy the Mar 12/13 call spread for $0.30 if possible. This purchases ~39 vol and sells ~40 vol. So a vol scalp on a call spread, which is not usually the case.

2. Calendar Spread the downside:
A little trick here, the Feb/Mar 11 put spread costs ~$0.20. If that can get done for $0.15, it's an 11 point vol scalp with some room to the downside. If stock stays here(ish) on earnings, a sale of the Mar 10 puts on Feb expo could yield ~ $0.10, leaving this position with a Mar 10/11 put spread for $0.05. Granted, all of those prices are pretty hard to find.

3. Calendar Spread the upside:
Try the Feb/Mar 13 call spread and pay $0.10. That's a nice cheap bet on some (but not huge) movement upwards for ONNN.

This is trade analysis, not a recommendation.

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Tuesday, February 1, 2011

Amphenol (APH) - Bullish Trades Roll In, Vol Pops

APH is trading $59.98, up 3.0% with IV30™ up 5.7%. The LIVEVOL® Pro Summary is below.

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APH is a designer, manufacturer and marketer of electrical, electronic and fiber optic connectors, interconnect systems, and coaxial and high-speed specialty cable.

The company has traded over 6,000 contracts on total daily average option volume of just 375. Calls have traded on nearly a 31:1 ratio to puts. The action is in the Feb 55 and 60 calls - both look like purchases to me. 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).

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

The skew looks pretty normal - I do note that vol difference that's opening up between Feb and Mar.

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).

The stock had earnings a couple of weeks ago and basically did nothing. The company announced a stock repo. program on 1-26-11, but that's about all I can find here. On the vol side (bottom of chart), we can see that IV30™ is now higher than it was into earnings.

Possible Trades to Analyze
1. Calendar Spread:
Sell the Feb 55/60 strangle @ $1.35 (~32 vol).
Buy the Mar 55/60 strangle for $2.40 (~27 vol).
Pay $1.05 to own the back - hope that APH goes to one of the strikes and pins on Feb expo.

2. Bet along side order flow:
Buy the Feb 55/60 call spread and pay less than $2.50. This is a coin flip with MaxGain:MaxLoss 1:1 (if done for $2.50), and the stock is $1.98 in the money to the 55 calls. For a bullish play, this is a reasonable bet.

This is trade analysis, not a recommendation.

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UltraShort Russell 2000 (TWM) - Huge Bearish (to Market) Order Flow

TWM is trading $12.28, down 2.1% with IV30™ down 4.0%. The LIVEVOL® Pro Summary is below.

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This is just a quick note on some very large order flow in a broad measure ETF - namely, the Ultra Short Russell 2000 ProShares.

The ETF has traded over 30,000 contracts in the first 30 minutes on total daily average option volume of just 912. All but one contract has been calls. It looks like someone bought the Mar 13/ Apr 14/ Jul 15 Christmas tree in calls 10,000x each. i.e. Bought all of the calls. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls and are mostly opening (compare OI to trade size). I don't see an OI greater than 1,600 on any one line, so these 10,000 on three different lines each are really large.

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

The skew looks normal. Keep in mind, this is a short ETF so the upside skew is really the downside for the index - thus the backward shape.

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).

The ETF has been going down as the market has been rallying (duh). This bet in general is wildly bearish and long vega (vol). The only time in the last two years when more contracts have traded in this ETF was 5-6-2010. That day more than 70,000 calls traded - but as far as I can tell, the high strike was sold to fund the lower strike calls. Today it feels like naked purchases across the board., but even if there was a spread, it's a large bearish bet.

This is trade analysis, not a recommendation.

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