DELL - Earnings Preview & Patterns

DELL is trading $13.84, down 1.8% with IV30™ up 6.5%. The LIVEVOL® Pro Summary is below.



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DELL has earnings today AMC. Thse earnings stocks on expo week are always fun as the front month becomes pure earings vol.

Let's start with some earnings stats from the last eight quarters. This analysis is available in Livevol Excel Premium.



So for 7/8 of the last earnings cycles, the one day ATM straddle sale and purchase back the next day was a winner. The average absolute one day stock move is ~$0.56, with a $1.58 and a $0.03 move as outliers.

Let's look to the Skew Tab.



Ok, so the vol is elevated in the front due to earnings and expo approaching. The second and third months have pretty nice skew shapes -- normal (ish). Let's look to the Charts Tab: the top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



We can see on the vol portion that the IV30™ has risen (as expected) into earnings. However, the last two cycles IV30™ was ~46 and ~41 respectively while today we see an IV30™ just above 37. So, in English, the vol isn't as high this earnings cycle as previous.

Just a quick note here, this is a great demonstration of the value of IV30™ -- a vol index that has a constant expiration length allowing us to compare events across time.

Finally, let's look to the Options Tab.



Possible Trades to Analyze
I like that DELL has a fairly muted move off of earnings, but the relatively lower vol this time makes a sale less attractive. But, never fear, lower vol means a purchase is more attractive.

1. Calendar Spread the upside skew:
Buy the Feb/Mar 15 call spread for $0.12.
The bet here is that DELL moves up on earnings, but not passed $15.

2. Calendar Spread the downside skew:
Buy the Feb/Mar 13 put spread for $0.16.
The bet here is that DELL moves down on earnings, but not passed $13.

3. Buy the vol in March:
Buy the Mar 14 straddle for $1.20 (~37 vol).

4. #3 with a twist:
Add a short Feb 13/15 strangle @ $0.21 (~85 vol).
This is tricky b/c $0.21 feels pretty small to be selling an earnings strangle -- it's just an idea I'm throwing out there. The 50 or so vol point scalp is not really the focus here as Feb has turned into a single event: earnings.

This is trade analysis, not a recommendation.

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NASDAQ Stock Market (NDAQ) - Elevated Vol on NYSE News

NDAQ is trading $28.22, down 4.8% with IV30™ up 5.0%. The LIVEVOL® Pro Summary is below.



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The NASDAQ OMX Group, Inc. is a global exchange group that delivers trading, exchange technology, securities listing, and public company services across six continents. i.e. this is NASDAQ.

I posted an article on NDAQ for TheStreet.com, so I can't give any specific trade analysis, but I find it to be interesting enough that it's still worth looking at.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. But the spread is huge and there's some news.

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).



The front is elevated to the back -- that's normal this close to expo. But the vol difference is actually gigantic. As of this writing, Feb vol is 35 points above Mar -- or said differently, Feb is ~88% higher than Mar.

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).



Two things I note:
1. The stock is moving up of late -- it's actually up 50% in the last few months.
2. The IV30™ is absolutely exploding with the stock price.

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



Allow me to quote myself from The Street.com article:
"I believe the vol in NDAQ has been spiking based on the takeover/merger news in NYSE Euronext and Germany’s main stock exchange company, Deutsche Börse. Whether or not that merger goes through, it takes NDAQ to the top of the list of potential takeover candidates."

Without taking specifics, I can see some OTM options where Feb (4 days left) is more nearly half of the Mar options. That's something...

This is trade analysis, not a recommendation.

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Weight Watchers (WTW) - Earnings Bet Is On

WTW is trading $44.01, up 0.1% with IV30™ down 2.0%. The LIVEVOL® Pro Summary is below.



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WTW will be announcing earnings 2-17-2011 BMO. I saw a large bet on the upside and felt it was worth a note.

The company has traded 6,635 contracts on total daily average option volume of just 371. All but 1 (one) contract has been calls. The action is in the Feb 45 calls where nearly 5,500 have traded (substantially purchases). 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). When looking down the entire option chain for WTW, I don't see any OI larger than 1,499, so this trade is very large.



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



We can see the front month is elevated to the back which is normal into expo, and even more expected with earnings approaching. It is little odd to me that the 45 strike in Feb isn't bent upwards given the volume today that appears to be long. The vol in Feb is up 20 points.

I've included some Earnings stats for the last eight quarters in WTW. This information is available to Livevol Excel Premium subscribers.



We can see that WTW options are generally priced pretty fairly into earnings because the straddle has gone up in value 3/8 times and down in value the other 5/8. I also note that WTW absolute price change on average is $2.16.

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 steadily climbed over the last 6 months. On the vol side (bottom), we can see the IV30™ has really exploded past the long-term and short-term realized. Bottom line, this feels like an earnings bet to me. Given that stock volume is 6x the average, these calls may be done with stock (and therefore turned into puts), but -- I don't see a large print at or around the time of the largest option trade.

The largest stock trades occurred at 9:52 EST and 9:44 EST - in total 400k shares, but the two trades look like opposite sides of each other (one purchase and one sale)

This is trade analysis, not a recommendation.

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United Rentals (URI) - Calendar Spread

URI is trading $32.78, up 4.9% with IV30™ up 5.0%. The LIVEVOL® Pro Summary is below.



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United Rentals, Inc. (United Rentals) is an equipment rental company and its network consists of 569 rental locations in the United States, Canada and Mexico.

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).



We can see how the front month is elevated to the back (which is normal this close to expo). In terms of the specific vol levels, 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.

IV30™: 42.91
HV20™: 40.42
HV180™: 47.52

Selling anything above 52 vol in and of itself feels reasonable, a purchase below 37 (ish) would also seem reasonable in and of itself.

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



Feb options can be sold @ 57 and above vol, while Mar options are priced at ~ 42 vol.

Potential Trades to Analyze
1. Calendar spread on two-sides:
Sell the Feb 32/33 strangle @ $0.95 ~57 vol.
Buy the Mar 32/33 strangle for $2.85 ~43 vol.
Pay 1.90 to own Mar vs. Feb.
NB: URI has moved $1.50 today -- one more of those and this trade doesn't look very good.

2. Calendar spread one-sided:
a. Buy the Feb/Mar 33 call spread for $0.95
b. Buy the Feb/Mar 32 put spread for $0.95

3. Calendar spread one-sided with more risk
a. Sell the Feb 33 calls @ $0.50
Buy the Mar 32/34 call spread for $1.00
Pay $0.50, but be naked short the upside for a week.

b. Do a similar trade with the Feb 32 put and Mar 33/31 put spread.

This is trade analysis, not a recommendation.

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Anadarko Petroleum (APC) - Elevated Vol in Expiring Month

APC is trading $78.24, up 0.7% with IV30™ unched. The LIVEVOL® Pro Summary is below.



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Anadarko Petroleum Corporation (Anadarko) is an independent oil and gas exploration and production company, with 2.3 billion barrels of oil equivalent of proved reserves as of December 31, 2009.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. Again, as we approach expo, it's the skew difference that grab my attention.

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).



The front is elevated to the back and the skew has gone parabolic, creating a larger vol difference for the OTM options.

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 HV180™ is relative to the short-term historical vol (HV20™) and the short-term implied vol (IV30™). Specifically:

IV30™: 39.09
HV20™: 32.74
HV180™: 56.58

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



Potential Trades to Analyze
1. Calendar spread the ATM options:
Sell the Feb 75/80 strangle @ $1.95 (~44 vol).
Buy the Mar 75/80 strangle for $5.32 (~40 vol).
Paying $3.37 to own Mar vs Feb. Not the greatest vol scalp though.

2. OTM calendar spread:
Sell the Feb 72.5/85 strangle @ $0.68 (~48 vol).
Buy the Mar 72.5/85 strangle for $3.00 (~40 vol).
Pay $2.32 to own Mar vs Feb.

3. One-sided calendar:
Any of the trades above but just the calls or puts. In terms of vol, the Feb/Mar 85 call spread creates a ~10 point vol scalp accounting for execution prices. Going even further OTM, the Feb/Mar 90 call spread purchases ~42 vol vs a ~57 vol sale (i.e. 15 vol point difference).

This is trade analysis, not a recommendation.

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JDS Uniphase (JDSU) - Stock Rising, Vol Rising, Skew Opening

JDSU is trading $26.22, up 3.8% with IV30™ up 2.8%. The LIVEVOL® Pro Summary is below.




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JDS Uniphase Corporation (JDSU) is a provider of communications test and measurement solutions and optical products for telecommunications service providers, wireless operators, cable operators, and network equipment manufacturers.

The stock popped last week on an earnings blowout, rising ~27% in one day.

The company 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).



We can see how the front month is elevated to the back (which is normal this close to expo). I also note that the OTM skew (calls and puts) shows an even larger vol difference. The upside skew for both Feb and Mar is bent upwards from the news, stock movement and order flow. I've included the skew chart for JDSU as of 11-24-2010 - note how the upside was flat back then.



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).



Obviously the HV20™ is super elevated off of the earnings move. The IV30™ is rising, but is still below even the long-term historical stock vol (HV180™).

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



Potential Trades to Analyze
1. ATM Calendar Spread:
a. Sell the Feb 26 straddle @ $1.66 (~56 vol).
Buy the Mar 26 straddle for $3.23 (~50 vol).

b. Sell the Feb 26/27 strangle @ $1.26 (~57 vol).
Buy the Mar 26/27 strangle for $2.80 (~51 vol).

2. OTM Calendar Spread; one-sided:
a. Sell the Feb 28 call @ $0.27 (~59 vol).
Buy the Mar 28 call for $0.96 (~51 vol).

b. Sell the Feb 25 put @ $0.35 (~56 vol).
Buy the Mar 25 put for $1.05 (~50 vol).

3. Trade the vol difference, but accumulate deltas:
a. Sell the Feb 28 call @ $0.27 (~59 vol).
Buy the Mar 27 call for $1.30 (51 vol).
The risk here is two-sided. If JDSU explodes in Feb, that spread could turn to $1 (and it costs $1.03). Of course, the bigger risk is that JDSU goes down.

b. Sell the Feb 29 call @ $0.15 (~62 vol).
Buy the Mar 28 call for $0.96 (~52 vol).

4. Do #3, but take on some more risk:
Sell the Feb 29 call @ $0.15 (~62 vol).
Buy the Mar 28 call for $0.96 (~52 vol).
Sell the Mar 30 call @ $.52 (~52 vol).
Buy the Feb 30 call for $0.10 (~66 vol).
Pay $0.39 in anticipation of JDSU going to ~ $29 on Feb expo. Skipping the fourth leg is also doable, but leaves naked upside in a ripping tech stock that may be a takeover candidate.

This is trade analysis, not a recommendation.

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EBAY - Stock Up, Vol Up, Calls Trade on Strong Expectations

EBAY is trading $34.02, up 6.5% with IV30™ up 6.4%. The LIVEVOL® Pro Summary is below.



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Here's the news pushing EBAY up:
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SAN FRANCISCO (MarketWatch) — Shares of eBay Inc. jumped Thursday morning to their highest level in more than three years as the company kicked off a meeting with financial analysts and communicated strong expectations for both the core marketplace and PayPal business units.
Source: MarketWatch, By Dan Gallagher
---

The company has traded over 93,000 contracts on total daily average option volume of just 24,972. Calls have traded nearly 60,000x, yielding a 1.7:1 ratio with puts (the average is 1:1). The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action: over 13,000 Feb 25 calls have traded.



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



I note the upside skew difference between the front month (red) and the back months. The call interest has pushed this vol difference.

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 pop today and the corresponding vol increase. Based on the vol chart, IV30™ seems fair to expensive right now.

Possible Trades to Analyze
1. Trade the upside skew calendar:
a. Sell the Feb 36 call @ $0.18 (~39 vol).
Buy the Mar 36 call for $0.54 (~30 vol).
Pay $0.36 to own Mar vs Feb upside.

b. Sell the Feb 37 call @ $0.10 (~42 vol).
Buy the Mar 37 call for $0.31 (~30 vol).
Pay $0.21 to own Mar vs Feb upside, but further OTM.

2. Trade the downside skew calendar:
Sell the Feb 32 put @ $0.13 (~37 vol).
Buy the Mar 32 put for $0.61 (~34 vol).
Pay $0.44 to own Mar vs Feb downside.

3. More bullish, more risky:
Sell 1 Feb 36 call @ $0.18 (~39 vol).
Buy 1 Mar 34 call for $1.33 (~31 vol).
Sell 1 Mar 37 call @ $0.30 (~28 vol).
Pay $0.85 with upside risk in Feb. If EBAY moves up, but stays below $36 by Feb expo., this ends up as a $3 call spread for just $0.85.
N.B.: This is naked upside risk.

This is trade analysis, not a recommendation.

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Sequenom (SQNM) - Vol Difference Opens up in Reverse on Earnings

SQNM is trading $7.38, up 10.0% with IV30™ down 2.2%. The LIVEVOL® Pro Summary is below.



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Sequenom, Inc. (Sequenom) is a diagnostic testing and genetics analysis company. I found this one by accident really, but the vol difference between the OTM calls in the front two months is compelling given that earnings are in the Mar cycle.

The company has traded over 12,500 contracts in the first couple of hours on total daily average option volume of just 2,310. Calls have traded on a 13.4:1 ratio, but the calls look like sales. The Stats Tab snapshot is included (below).



The Options Tab (below) illustrates the action. The Mar 8 calls, Jun 9 calls and Feb 7 calls are most active and all feel like sales to me.



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



While the calls are being sold, the Mar vol is going down in the OTM calls, but Feb is not as much. In English, there's a vol difference that has opened up where the back month with earnings can be purchased at a cheaper vol than the front month without earnings.

Since this stock is a bio-tech/pharma, the earnings dates aren't necessarily the giant news, but it's still a volatility event.

Possible Trades to Analyze
1. Calendar spread the OTM Feb/Mar upside skew:
Sell the Feb 8 call @ $0.09 (~60 vol).
Buy the Mar 8 call for $0.28 (~52 vol).
Pay $0.19 to own the one strike OTM calls in a bio-tech with earnings. Not too shabby for those that like to bet on bio-techs.

2. Calendar spread the OTM Feb/Mar downside skew:
Sell the Feb 7 put @ $0.06 (~50 vol).
Buy the Mar 7 put for $0.27 (~50 vol).
Pay $0.21 to own the downside in Mar vs. Feb and own an earnings event for an even trade of vol.

3. As always, with bio-techs, sitting this out might be the most reasonable play of all.

This is trade analysis, not a recommendation.

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