Risk Laboratory: Ophir Gottlieb

Wednesday, February 9, 2011

MGIC Investment (MTG) - Multi-month Calendar

MTG is trading $9.08, down 0.4% with IV30™ up 2.0%. 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 second and third months.

Custom Scan Details
Stock Price >= $5
Sigma2 - Sigma3 >= 7
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 and <=50
Sigma2, Sigma3 >= 1

The stock also has an elevated front month vol which makes this an interesting one to examine.

The goal with this scan is to identify third months that are cheaper than the second month by at least 7 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 second month (yellow line) relative to the third month (green line). We can also see the front month vol is elevated to the second.

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 stock collapsed on the earnings release, so the HV20™ is obviously uber-elevated.

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

Potential Trades to Analyze
1. Calendar spread the second and third months:
Sell the Mar 9 straddle @ $1.55 (~66 vol).
Buy the Jun 9 straddle for $2.60 (~62 vol).
The added benefit here is that the Jun options have an earnings cycle (probably in late April (ish)). Another twist here is to sell the Feb 8/10 strangle rather than the straddle as the both OTM wings are trading at higher vol than the ATM (see the skew snapshot above).

2. Do a staged multi-month calendar:
Sell the Feb9 straddle @ $0.80 (~70 vol).
Buy the Jun 9 straddle for $2.60 (~62 vol).
If all works out well on Feb expo, you may be able to sell the Apr ATM straddle (or the Mar ATM straddle or both). The goal being to own a Jun straddle funded by more than one month of short straddles, while never being being short more options than you're long at any one moment.

This is trade analysis, not a recommendation.

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GT Solar Int'l (SOLR) - Vol Pops on Active Calls

SOLR is trading $10.71, up 2.0% with IV30™ up 7.6%. 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.

SOLR is trading active today. Over 5,400 contracts have changed hands on a daily average of just 1,124. All but 273 contracts have been calls, yielding an 18.8:1 call:put ratio. The Feb 10 calls have traded more than 4,500x. They feel like purchases as the vol in Feb is up 14 points or ~25%. The Stats Tab snapshot is included below.

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).

Only the 10 strike in Feb has a bid in the OTM options, so it appears as a dot, rather than a curve. Nonetheless, the vol difference between the months is large enough to take a look.

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).

What I'm interested in here is the vol portion. Check out how high IV30™ is relative to the short-term historical vol (HV20™). Specifically:

IV30™: 60.83
HV20™: 45.42
HV180™: 61.35

The stock has been "sleepy" of late, but the vol is popping, so the options market is reflecting not so "sleepy" movement.

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

Potential Trades to Analyze
1. Two-sided calendar spread:
Sell the Feb 10 straddle @ $1.05 (~68 vol)
Buy the Mar 10 straddle for $1.75 (~52 vol)
Pay $0.70 to own Mar vs. Feb.

2. One-sided calendar spread:
a. Buy the Feb/Mar 10 put spread for $0.35.
b. Buy the Feb/Mar 10 call spread for $0.35.

3. Skip the calendar just get long deltas - copy order flow:
Buy the Mar 10/12.5 call spread for $0.95.

This is trade analysis, not a recommendation.

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Tuesday, February 8, 2011

Take-Two (TTWO) - Earnings Vol Creates Calendar

TTWO is trading $14.40, down 0.3% with IV30™ up 5.0% with earnings today AMC. The LIVEVOL® Pro Summary is below.

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So there you go. The vol difference is more than 20 points. Note that TTWO does have a tendency to gap on earnings.

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

Potential Trades to Analyze
1. Trade the upside skew vol difference in a calendar:
Sell the Feb 15 call @ $0.40 (~66 vol).
Buy the Mar 15 call for $0.70 (~52 vol).
Pay $0.30 to own the upside in Mar, but note how close it is to ATM - so a big move up or down could hurt this trade.

2. Trade the skew, but further OTM:
Sell the Feb 16 call @ $0.20 (~70 vol).
Buy the Mar 16 call for $0.40 (~52 vol).
Risk $0.20 and have some room if TTWO moves up on earnings - obviously, if stock gaps down, this won't work very well (at least in the short-term).

3. Calendar spread the puts:
Sell the Feb 13 put @ $0.15 (~70 vol).
Buy the Mar 13 put for $0.35 (~51 vol).
Pay $0.20, but this time for the downside.

4. Trading the ATM seems reasonable as well, but be aware of the risk and the bet that's being made.

5. Off-set strikes in call or put spreads are also a possibility.

This is trade analysis, not a recommendation.

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Bank of New York Mellon (BK) - Vol Pops on Dividend Spec

BK is trading $32.24, up 1.3% with IV30™ popping up 6.0%. The LIVEVOL® Pro Summary is below.

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Here's what I believe to be the relevant news:
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While these banks have talked openly about increasing their dividends for several weeks if not months, the timetable suggested by the report is sooner than many bank stock watched have expected and "would be viewed favorably by the market," the report states.
RBC's analysts argue dividend increases "should approach 30% of current earnings."
Source: Bank Dividends May Come Early: Analysts
By Dan Freed
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The company has traded just over 15,000 contracts on total daily average option volume of just 4,786. Calls have traded on a 37.5:1 ratio to puts with over 10,000 Mar 31 calls changing hands. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Mar 31 calls are mostly opening (compare OI to trade size). I do think most of these are purchases, but there is some two-sided trading in my opinion. I also note the 8,527 OI in the Mar 30 calls - it looks like short interest, which makes sense if it's in anticipation of a large divi.

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

What's odd here, or sort of odd, is that the ATM vols rise each month. There's no rule that back months should be cheaper than front but it's not common. The skew is more pronounced in the front month, which is in fact very "normal." Very normal?...

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).

IV30™: 24.44
HV20™: 24.79
HV180™: 26.40

The one thing that I note here is that the IV30™ is in fact lower than both the short-term historical realized vol (HV20™) and the long-term realized vol (HV180™). Since the vol is higher in the back months than the front, and the vol is increasing, it feels like maybe this worth some analysis.

Possible Trades to Analyze
1. Buy some Mar vol:
Buy the Mar 32 straddle for $2.40

2. Do a calendar:
The options market reflects slightly elevated risk in Mar to Feb, but maybe the news really is out in Mar, so selling Feb to fund it could be worth a look.
Sell the Feb 32 straddle @ $1.03
Buy the Mar 32 straddle for $2.40
I gotta say, that Feb straddle does seem kinda cheap, though.

3. Buy some Feb vol:
Buy the Feb 32 straddle for $1.05. This purchases ~25 vol.

This is trade analysis, not a recommendation.

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Red Hat (RHT) - Calls Trade, Vol and Skew Pop

RHT is trading $44.61, up 1.1% with IV30™ up 11.9%. The LIVEVOL® Pro Summary is below.

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Red Hat, Inc. (Red Hat) is engaged in providing open source software solutions to the enterprise, including its core enterprise operating system platform, Red Hat Enterprise Linux, its enterprise middleware platform, JBoss Enterprise Middleware, its virtualization solutions and other Red Hat enterprise technologies.

The company has traded over 9,500 contracts on total daily average option volume of just 2,869. Calls have traded on a 28:1 ratio to puts with the Feb 45 and 46 calls being the most active. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the 45 and 46 calls in Feb are mostly opening (compare OI to trade size). Oddly, the Feb 45 calls look like sales though vol is up 4.5 points in Feb and 3.8 points in Mar.

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

The skew definitely has some bumps as the volume pushes each line vol around. Notice the upside skew in both months and the vol difference between the two.

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).

Note on the vol chart on the bottom. The IV30™ is spiking and now all three vol measures on the chart are essentially even.

IV30™: 36.40
HV20™: 36.95
HV180™: 34.16

Possible Trades to Analyze
1. Trade Feb skew to the upside:
Buy the Feb 47/48 call spread for $0.15. I would note that this is quite a bit OTM, though it does sell slightly higher vol than it purchases in a call spread (which is unusual).

2. Trade Feb vs Mar skew to the upside:
Sell the Feb 48 call @ $0.20.
Buy the Mar 48 call for $0.95.
Pay $0.75 to own Mar against Feb.

This is trade analysis, not a recommendation.

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Monday, February 7, 2011

Gannett (GCI) - Vol and Stock Explode; Skew Opens Up

GCI is trading $18.76, up 12.6% with IV30™ up 17.8%. The LIVEVOL® Pro Summary is below.

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Gannett Co., Inc. (Gannett) is an international media and marketing solutions company. The Company publishes 83 daily United States newspapers, including USA TODAY, the daily print newspaper, and more than 650 magazines and other non-dailies, including USA WEEKEND.

Vol has been jumping in this name as the stock has been rising. On 1-31-2011, this was a $14.74 stock. Today, Feb vol is up 28 points or 74% while Mar is up 3.8 points or 9%.

The company has traded over 17,500 contracts in the first three hours on total daily average option volume of just 2,321. Calls have traded over 16,000 contracts yielding a 15:1 call:put ratio. Feb 16, 18 and 19 calls have been the most active. 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 Feb 16 calls look like purchases, but the 18 and 19 calls feel like sales, though I'm not sure because the skew makes it look like there is buying interest in the upside (rather than selling).

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

We can see a large vol difference opening up between the front and second months. Feb also has a pronounced upside skew with an interesting dip in the middle. The Feb skew and the Feb/Mar difference both represent interesting vol phenomena that are worth analyzing.

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).

It's interesting to see that GCI was an $11 stock just a few months ago. On the vol side we can see the IV30™ popping right off of the vol drop from earnings.

Possible Trades to Analyze
1. Trade Feb Skew:
Buy the Feb 19/20 call spread for $0.35 and scalp about 6 vol points. Those prices are hard to get, but there is liquidity in the calls so this one may be worth setting an aggressive price goal and not budging if you don't get it.

2. Trade the calendar spread to one side:
a. Buy the Feb/Mar 19 call spread for $0.30 and scalp about 18 vol points. Other strikes are worth analyzing as well.
b. Buy the Feb/Mar 17 put spread for $0.30 and scalp about 15 vol points.
Other strikes are worth analyzing as well.

3. Trade the calendar delta neutral:
Sell the Feb 18 straddle @ $1.75 (~64 vol).
Buy the Mar 18 straddle for $2.30 (~46 vol).

4. Just purchase the Mar vol:
If you think the vol is low in Mar given the recent stock moves, it's reasonable to analyze purchasing some Mar vol.

This is trade analysis, not a recommendation.

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Coinstar (CSTR) - Gapping Stock and Skew Difference

CSTR is trading $39.85, up 2.3% with IV30™ down 0.4%. The LIVEVOL® Pro Summary is below.

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We can see three large stock moves of late:
1. 10-29-2010: $46.26 ---> $57.58 (earnings)
2. 1-14-2011: $56.95 ---> $41.50
3. 2-4-2011: $44.24 ---> $38.96 (earnings)

Owning vol on any of those days would have been nice. Let's turn to the Skew Tab.

We can see the front month is elevated to the back, in particular to the upside. Finally, let's turn to the Options Tab.

Possible Trades to Analyze
1. Calendar spread the upside skew (a couple ways to do this):
a. Buy the Feb/Mar 42.5 call spread for $0.85.
b. Buy the Feb/Mar 45 call spread for $0.55.

2. Sell the vol in Feb:
Sell the Feb 40/42.5 strangle @ $1.80.
Buy the Feb 37.5/45 strangle for $0.50.
Collect $1.30 and risk losing $1.20.

3. Buy the Mar vol:
Buy the Mar 40 straddle for $4.60.

This is trade analysis, not a recommendation.

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Friday, February 4, 2011

Petroleo Brasileiro (PBR) - Depressed Earnings Vol and Order Flow

PBR is trading $37.92, down 1.4% with IV30™ up 0.4%. The LIVEVOL™ Pro Summary is below.

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Petroleo Brasileiro S.A. (Petrobras) is an integrated oil and gas company. The Company operates in five segments: exploration and production; refining, transportation and marketing; distribution; gas and power, and international.

Having said that, when I hear the name called out on the floor, I think of peanut butter. Mmm, peanut butter... I'm just sayin'...

The company has traded over 59,000 contracts on total daily average option volume of 53,764. A large trade crossed the tape that Darren Story of Student Options alerted me to:
"PBR cust bought the apr 36/34 ps to sell the apr 41c collected .20 2500x"

In English, someone bought the Apr 34/36 put spread and sold the Apr 41 calls to fund it, collected $0.20 in total and did it 2,500 times. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that all the legs traded smaller than OI.

The actual prices that went up were:
Apr 34 put sold @ $0.62
Apr 36 put bought for $1.20
Apr 41 call sold @ $0.78
I've included the PnL chart on Apr expo for this trade below.

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

Don't let your eyes deceive you, the vol difference between Feb (no earnings release) and Mar (with an earnings release) is just 1 point. 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).

On the last two earnings cycles PBR has dropped pretty hard, but it was a few days after the release. This is another bet on that type of move. Also, we can see the IV30™ is actually depressed relative to the realized short-term and long-term vols. So, this is a bet on another earnings move and it gets to purchase cheapish vol to the downside and funds that with a call sale. Tricky...

Possible Trades to Analyze
1. Sell Feb and buy the depressed earnings vol in March
Sell the Feb 36/40 strangle
Buy the Mar 36/40 strangle

2. Just bet to the downside (like the order flow)
Do the Feb/Mar 37 put spread

3. A touch riskier:
Do #2, but also sell the Mar 33 puts @ $0.20. Note, this is naked downside until Feb expo.

This is trade analysis, not a recommendation.

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