TIVO - Implied Risk Criss Crosses on Upside Skew

TIVO is trading $$9.37, down 0.8% with IV30™ up 2.3%. The LIVEVOL® Pro Summary is below.



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TiVo Inc. (TiVo) is a provider of advanced television technology and services that redefines home entertainment by providing consumers with an easy way to manage, control, watch, and record live television and receive thousands of movies and television shows from cable, broadcast, and broadband sources in intuitive user interface.

This is the perpetual law suit name -- embroiled in legal action against others seemingly for the last... forever...

An interesting vol phenomenon has arisen, so let's take a look.

The company has traded over 50,000 contracts on total daily average option volume of just 15,708. Calls have traded on a 5.2:1 ratio to puts. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action. Check out the vols for each month ATM and upside skew.



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



Check this out: The ATM vol in Mar (9 strike) is 82. The ATM vol in Apr is 102. Without even doing a news look up, clearly the option markets reflect substantially more risk in Apr than Mar (and it's not an earnings release b/c that just happened three days ago). But... the OTM calls are much more expensive (read: higher vol) in Mar. Ah ha... That is an interesting 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 HV20™ - blue vs HV180™ - pink).



We can see the stock gaps up or down basically every 10 weeks (ish) -- nothing feels settled yet, certainly not with vol in Apr over 100.

Possible Trades to Analyze
I'm going to leave this generic: The trades that seem worthy of further investigation (like reading up on news) are the ones that sell elevated vol in the front month on the wings covered by the lower vol wings in the second month (or third month). That seems (at first blush) to allow a purchase of "event" vol for lower than "non-event" vol. Very interesting...

This is trade analysis, not a recommendation.

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Southwest Airlines (LUV) - Near-term Call Accumulator on Ripping Vol

LUV is trading $11.66, down 1.0% with IV30™ up 11.3%. The LIVEVOL® Pro Summary is below.



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Southwest Airlines Co. (Southwest) is a passenger airline that provides scheduled air transportation in the United States.

The company has traded over 10,000 contracts on total daily average option volume of just 1,817. Calls have traded on a 6.4:1 ratio to puts with the action being in the Mar 12 calls -- over 8,000 have traded. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the OI is rather large in the Mar 12 calls.



Using the Level II pop-out (below), we can see the OI has jumped as of yesterday (trades on 3-2-2011).



I've included the largest trades on 3-2-2011 in those calls (below).



So, my best guess is those are long -- the vol was up more than 6% as well. The trades today look like purchases and again the confirming circumstantial evidence is the vol pop. So, In English, it looks like someone is piling on a long position in the Mar 12 calls. Checking the OI tomorrow will be the ultimate test.

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



We can see the upside skew going into the 12 strike in Mar, and then even higher going into the Mar 13 strike. The vol drops off to the 13 strike in Apr.

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).



A couple of notable phenomena:
1. IV30™ is ripping as of late.
2. The stock is around some near-term lows.

There was some news out today on US Airways and Alaska Airlines -- positive results for February traffic according to Forbes.com. You can read that article here:
US Airways, Alaska Airlines Soar On February Traffic Report

Possible Trades to Analyze
1. Trade the Mar skew
Buy the Mar 12/13 call spread for $0.20. This purchases 42 vol and sells 44 vol on those prices.

2. Tricky calendar:
Difficult to get these prices, but paying mid-market ($0.10) in the Apr 13 calls and hitting the bid ($0.05) in the Mar 13 calls pays $0.05 to own Apr upside. It's not the most exciting trade of all time, but it's worth analyzing.

3. Sell the elevated vol:
Since the IV30™ is popping, examining a vol sale may be worth some time.
Sell the Apr 12 straddle @ $0.70.
Buy the Apr 11/13 strangle for $0.20.
That yields a MaxGain:MaxLoss of 1:1.

4. Do nothing, see if this elevated vol trend continues and re-evaluate.

This is trade analysis, not a recommendation.

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Rowan Companies (RDC) - Vol and Skew Move on Call Order Flow

RDC is trading $42.97, up 0.6% with IV30™ up 1.7%. The LIVEVOL™ Pro Summary is below.



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Rowan Companies, Inc. (Rowan) is a provider of international and domestic contract drilling services. Rowan also owns and operates a manufacturing division that produces equipment for the drilling, mining and timber industries.

The company has traded over 9,951 contracts on total daily average option volume of just 1,917. Calls have traded on a 4.2:1 ratio to puts. The action is in the front month, where ~8,000 calls have traded. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action. The Mar 42, 43 calls seem to be purchases, the 45 seem like potentially sales and the 46 calls are ambiguous, though I lean toward purchases.



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



We can see the upside vol in Mar (red line) has bent upwards to the order flow while Apr (yellow) has not. The vol difference isn't huge, but it's notable.

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 few months, including a pop off of earnings. On the vol side (bottom), we can see the IV30™ dropped off of earnings (as expected), but has now turned back up and sits squarely above the historical vols (both short-term and long-term).

Possible Trades to Analyze
1. Call spread in Mar:
Any number of call spreads are on the board where the lower strike has slightly lower vol than the higher strike which is generally not the case with call spreads.

2. Calendar spread the upside skew:
The Apr OTM calls show slightly lower vol than the Mar calls, possibly because of order flow. Note that the ATM vol is higher than the OTM calls in April -- the opposite of the trend in Mar.

3. Sit and watch: Maybe the skew divergence (either in Mar or in between Mar and Apr) will open up wider.

This is trade analysis, not a recommendation.

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Waste Management (WM) - Elevated Vol

WM is trading $37.25, up 1.1% with IV30™ down 4.2%. The LIVEVOL™ Pro Summary is below.



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Waste Management, Inc. (WMI) is a provider of integrated waste services in North America. I found this stock using a real-time custom scan. This one hunts for high vols.

Custom Scan Details
Stock Price >= $7 <= $70
IV30™ - HV20™ >= 10
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >=10 <=60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated 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 selling elevated IV30™ simply because earnings are approaching.

The WM 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 yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

 

We can see:
IV30™: 21.75
HV20™: 9.00
HV180™: 13.61

So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock.

Now we look to the Skew tab (below).



The skew looks normal across the front three months without any obvious spread opportunities that I see.

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



Possible Trades to Analyze
1. Sell the Mar 37 straddle @ $1.30.
Buy the Mar 36/38 strangle for $0.60.
Receive $0.70. Every nickel counts on these trades. This yields a MaxGain:MaxLoss of 1.16:1 and requires WM be in the range ($36.30, $37.70) on Mar expo to be profitable.

2. A little twist:
Sell the Mar 36/37 strangle @ $0.95.
Buy the Mar 35/38 strangle for $0.45.
Receive $0.50. This yields a 1.11:1 MaGain:MaxLoss and requires WM to be in ($35.50, $37.50) on Mar expo. Note the greater downside room, but less upside.

3. Totally backwards:
Since the option markets reflect more risk (elevated vol), maybe 22 vol is a purchase...

NB: A bullish or bearish expectation in this stock in the near-term makes trades #1 and #2 analyzed uninteresting or even inappropriate.  Also, please check my math -- there's no guarantee I can add.

This is trade analysis, not a recommendation.

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NASDAQ Stock Market (NDAQ) - Calendar and Complex Vol Comps

NDAQ is trading $27.79, up 0.4% with IV30™ up 1.9%. 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 wrote about NDAQ on 2-15-2011. You can read that post here:
NASDAQ Stock Market (NDAQ) - Elevated Vol on NYSE News.

I know, I know, what's worse than clicking to see an old article? So here are the highlights:

"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."

I just quoted myself quoting myself, or in the wise words of Austin Powers, "allow myself to introduce myself."

Anyway... The stock's vol has been rising, but the price has also been moving a lot. Today NDAQ 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 also note that the third month (green line) is well below the front two months and what do ya know... there's an earnings cycle in that expiration.



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). I've added another color as I figured it's already convoluted so why not go further...



The white line is the HV10™ -- it's the realized volatility of the stock over the last 10 trading days. The point here is to recognize that while IV30™ seems fair value(ish) to HV20™, that HV20™ number is artificially elevated because of a move off of earnings. But, When comparing the IV30™ to the shorter-term HV10™, you could make an argument that the IV30™ is elevated. Specifically:

IV30™: 43.83
HV10™: 36.71
HV180™: 28.09
HV20™: 47.16

Again -- you can make an argument that NDAQ implied vol is high when factoring out that earnings move.

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




Potential Trades to Analyze
This is similar to the post earlier today on BKS in that the third month has the earnings event.

1. Calendar spread Mar/Apr:
Sell the Mar 27/28 strangle @ $1.75 (~46 vol).
Buy the Apr 27/28 strangle for $2.85 (~42 vol).
The risk is that NDAQ moves far away from the ($27, $28) range by Mar expo.

2. Calendar spread Mar/Jun:
Sell the Mar 27/28 strangle @ $1.75 (~46 vol).
Buy the Jun 27/28 strangle for $4.10 (~39 vol).
The risk again is that NDAQ moves far away from the ($27, $28) range by Mar expo. This trade costs more than #1 as you own longer term options with the benefit of also owning an earnings cycle. An extension here if it works out to Mar expo is to then sell the Apr strangle -- this sells options 2:1 but is never naked short.

3. Calendar spread Apr/Jun:
Sell the Mar 27/28 strangle @ $1.75 (~46 vol).
Buy the Jun 27/28 strangle for $4.10 (~39 vol).
The risk is that NDAQ moves far away from the ($27, $28) range by Apr expo.

4. A little trickier:
It's reasonable to analyze selling further OTM options in Mar (wings) and to buy the meat in Jun (or Apr). This costs a bit more but also allows for the stock to move more before the front month expo.

This is trade analysis, not a recommendation.

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Barnes & Noble (BKS) - Calendar Spread on Company Uncertainty

BKS is trading $12.61, down 0.7% with IV30™ up 1.1%. The LIVEVOL™ Pro Summary is below.



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Barnes & Noble, Inc. (Barnes & Noble) is a bookseller. The Company is a content, commerce and technology company that provides customers access to books, magazines, newspapers and other content across its multi-channel distribution platform.

Here's a quick snippet from the Canadian Press after BKS earnings a couple of weeks ago:
----
Book seller Barnes & Noble's third-quarter revenue rose, but its net income fell 25 per cent as it continued to invest in its online operations and Nook e-readers, the company said Tuesday.

The largest U.S. traditional book store chain also said it was suspending its quarterly dividend, and it doesn't plan to forecast its fourth-quarter or full-year earnings due to the effect of last week's bankruptcy filing by its chief rival, Borders Group Inc.
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Yikes... Dividend suspended and no projections... The next earnings cycle is due out late Jun-early Jul. How convenient that the third month listed is the Jul options.

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 <=50
Sigma2, Sigma3 >= 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 third months that are cheaper than the second 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). I also note that the front month (red line) is elevated to both of the others.



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).



Most notable here is the giant drop from earnings a couple of weeks ago. BKS peaked at ~$18.69 a few days before the release, and is now down in the $12 range.

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



Potential Trades to Analyze
So the question here is, will the company stand by their press release and not provide guidance? If so, the vol in Jul options could increase dramatically as we approach the earnings date. That vol increase will reflect growing uncertainty. Owning the third month at a discount seems like a reasonable trade to analyze -- the question is, how does one do that?

1. Calendar spread April and July:
Sell the Apr 12/13 strangle @ $1.40 (~54 vol).
Buy the Jul 12/13 strangle for $2.50 (~49 vol).
A net debit of $1.10. One risk here is that BKS moves abruptly outside of the ($12, $13) range before Apr expo. That could kill the vol in the July strikes and net a loss.

2. Calendar spread Mar and July:
2a. Sell the Mar 12/13 strangle @ $0.75 (~59 vol).
Buy the Jul 12/13 strangle for $2.50 (~49 vol).
The risk here is similar to #1, but the stock has to stay range bound for one less month. The trade-off of course is that the net debit is $1.75 as opposed to $1.10.
2b. An extension to this trade, if it works out through Mar expo, is to then sell the Apr 12/13 strangle. So, sell twice as many options are purchased but never be naked short.

3. Buy July naked:
It's reasonable to analyze simply purchasing July options. The question then is, when? If BKS stock sits still and there is no news (as the company claims), then the Jul options will get cheaper as time decays them.

4. An odd ball: Buy Mar naked.
Yup -- it's also interesting to analyze purchasing the elevated vol in Mar and bet on a BKS stock move of a couple bucks in the next few weeks.

This is trade analysis, not a recommendation.

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iStar Financial (SFI) - Upside Skew Stands Out on Order Flow

SFI is trading $9.94, down 0.5% with IV30™ up 4.1%. The LIVEVOL® Pro Summary is below.



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iStar Financial Inc. is a finance company focused on the commercial real estate industry.

The company has traded just under 95,000 contracts on total daily average option volume of just 4,679. Calls have traded on a 13.7:1 ratio to puts. The largest trade looks like a Jul 10/13 call spread bought for $1.00 ~40,000x (~80,000 contracts). The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action in the front two months. I've omitted Jul because it's the front months that I find more interesting. For what it's worth, the OI in July (both lines) was ~ 10,000, so the 40k today are mostly opening.



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



This is where the vol gets interesting. Note how bid the Mar 11 calls are relative to the ATM in Mar, AND the ATM and OTM calls in Apr and Jul. In English, selling the Mar 11 calls covered by a variety of different options seem like reasonable trades 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 HV20™ - blue vs HV180™ - pink).



We can see the stock has climbed over the last 6 months. The 52 wk low is $2.70 and the stock has reached as high as $10.08.

Possible Trades to Analyze
To me, the most interesting trades here are selling the Mar 11 call elevated vol and covering any number of ways.

1. Skew spread in Mar:
Buy the Mar 10/11 call spread for $0.25. That scalps ~ 8 points of vol, copies order flow, gains deltas in a stock that has been going straight up and leaves a MaxGain:MaxLoss of 3:1.

2. Skew Spread the Calendar
a. Buy the Mar/Apr 10/11 call spread for $0.55 and sell ~ 10 points higher vol than you purchase.
b. Buy the Mar/Jul 10/11 call spread for $1.05 and also sell ~ 10 points higher vol than you purchase.
NB: 2b is a different trade than 2a. If the stock goes up well past $11 in the Mar cycle, the 2b trade could be a loser, unlike 2a.

3. Calendar Spread the OTM calls
3a. Buy the Mar/Apr 11 call spread for $0.15 and scalp about 12 vol points.
3b. Buy the Mar/Jul 11 call spread for $0.70 and scalp about 12 vol points.

NB: The next earnings cycle for SFI is projected to be in the May cycle (not April). So owning Jul versus owning Apr is quite a different position.

This is trade analysis, not a recommendation.

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Kroger (KR) - Earnings Vol Sale

KR is trading $22.87, down small with IV30™ up 4.0%. The LIVEVOL® Pro Summary is below.



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The Kroger Co. (Kroger) is a retailer in the United States. The Company also manufactures and processes some of the food for sale in its supermarkets. The company has earnings due out on 3-3-11 (projected).

Over 10,000 contracts have traded today on total daily average option volume of just 2,665. The largest trade accounted for 10,000 contracts -- an Apr 22/24 strangle sale 5,000x @ $0.91. Color from Mike Bristow of the V-trader Group. $The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the calls and puts are mostly opening (compare OI to trade size). This is a vol sale ahead of earnings in the second month -- so a straight vega bet.



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



The skew actually looks pretty normal. Even more odd, the Apr vol is up more than Mar today. As of this writing, Mar vol is at 32.81 (+1.1) and Apr vol is at 27.91 (+1.4),

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 vol is rising into earnings (as expected). On the last earnings cycle KR went down 13.5% in the few days following the release. IV30™ went up to 29.20 last cycle, and it's now above that level as of today. The vol sale is a bold move, we'll see what happens.

This is trade analysis, not a recommendation.

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