Xenoport (XNPT) - Bio-tech with Two Events and Order Flow

XNPT is trading $7.09, down 3.1% with IV30™ down 1.2%. The LIVEVOL™ Pro Summary is below.



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XenoPort, Inc. is a biopharmaceutical company focused on developing and commercializing a portfolio of internally discovered product candidates, which utilizes the body’s natural nutrient transport mechanisms to improve the therapeutic benefits of existing drugs.

Here's the deal (or part of the deal):
Xenoport(XNPT) and GlaxoSmithKline(GSK)
Drug/indication: Horizant for restless leg syndrome
Approval decision date: April 6, 2011
This is the second FDA review cycle for Horizant. The original new drug application was filed to FDA in January 2009.
Source: Biotech Calendar: 2011 FDA Drug Approvals, By Adam Feuerstein.

I also caught wind of this:
While most biotech investors are more focused on Xenoport’s (XNPT) PDUFA date for Horizant (gabapentin enacarbil), a treatment for restless leg syndrome, there exists a reasonably significant catalyst prior to that event. That catalyst is the Phase IIb data for arbaclofen placarbil (AP), a prodrug of (R)-baclofen, for gastroesophageal reflux disease (GERD) in patients that respond to proton pump inhibitor (PPI) therapy – scheduled for release sometime in the first quarter of 2011.
Source: Xenoport Expecting GERD Study Data , By Rockford Coscia.

Ah ha... Two vol events...

The company has traded over 5,200 contracts on total daily average option volume of just 827. Calls have traded on a nearly 30:1 ratio to puts. But it's call selling, that I see. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the Apr 11 calls have traded more than 3,500x and are mostly opening (compare OI to trade size). The trades look to be substantially sales @ $1.00.



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



It's tempting to think that Mar vol (red) is low -- it certainly is relative to Apr. But Mar vol is actually ~160 with parabolic skew (rising to both upside and downside).

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 stayed in a range for a few weeks as the IV30™ has taken off. There is risk here -- a lot of it.


Possible Trades to Analyze
1. If, and that's a big if, you want to bet that there is some big news coming in the Mar cycle, you can examine purchasing the Mar 7 straddle for $1.30. Sure, that's a lot for a $7 stock, but for a bio-tech... well, if there is definitive news (one way or the other) -- the stock can move a lot more than that.

Of course, then again, the news could fall flat (or not occur at all) or the investing world could be so focused on the FDA decision in April that nothing moves the stock until then.

2. If you want to bet that the stock will not move in Mar, you can examine:
Sell the Mar 7 straddle @ $1.25
Buy the Mar 6/8 strangle for $0.65.
Collect $0.60 and risk $0.40 for a 1.5:1 MaxGain:MaxLoss ratio.

3. I'm not gonna touch the April bets, except to say, #2 (or the opposite of #2) in April on various strikes are worth a look if you like to gamble on bio-techs. DON'T BE NAKED SHORT OR LONG in my opinion.

Keep in mind someone just sold the April upside/vol today, for whatever that's worth (if anything).

This is trade analysis, not a recommendation.

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Cablevision (CVC) - Exploding Vol and Calendar

CVC is trading $35.35, down 0.8% with IV30™ up 6.4%. The LIVEVOL™ Pro Summary is below.



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Cablevision Systems Corporation (Cablevision), through its subsidiary, CSC Holdings, LLC (CSC Holdings), is a cable operator in the United States. Cablevision also operates cable programming networks, entertainment businesses, telecommunications companies and a newspaper publishing business.

I actually like to use these large(ish) down days in the market when VIX pops to find some nice calendar spreads. I wrote about one in my TheStreet.com column (SPRD), but I like CVC as well.

First, on a wild digression -- for you market makers out there. I saw that CVC trades ~ 3,100 contracts a day on $0.40 wide markets ATM for a $35 stock with 35 vol and the underlying is cab wide with depth. I was like, dude! This is the best market making stock ever... Then I realized the volume is actually tiny, some massive divi crosses make the average sort of useless. Then I was like, oh... dude... NVM...

Today CVC came up on the real-time custom scan 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).



There are no obvious kinks and the upside does what an upside usually does -- just kind declines softly. The vol though, is worth a look.

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 most notable phenomenon here is the vol. Check out how elevated IV30™ is relative to both the short-term and long-term historical vols. Something is a foot.

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



Potential Trades to Analyze
First, do some homework. CVC had earnings on 2-16-2011 BMO, so the vol isn't related to that, but something feels like it's coming as the option markets reflect a ton of risk (read: IV™ is very high).

1. Calendar spread Mar/Apr delta neutral.
Sell the Mar 35 straddle @ $1.65.
Buy the Apr 35 straddle for $3.20.
I don't know if there's enough liquidity in those options to get those prices -- this is likely not a stock to reach on, NBBO is too wide.

2. Calendar spread Mar/Apr delta negative.
Buy the Mar/Apr 34 put spread for $0.65 and bet on a small downturn in Mar.

3. With the vol elevated (like GMCR yesterday), buy options.
The Mar 35 straddle costs ~$1.85 (if you can get good prices) -- the stock has been stuck in a range for a while but it has been as low as $21.68 within the last 52 weeks and as high as $38.08

This is trade analysis, not a recommendation.

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Green Mountain (GMCR) - Rising Vol and Stock; Calendar Spread

GMCR is trading $43.37, up 5.9% with IV30™ up 10.3. The LIVEVOL® Pro Summary is below.



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Green Mountain Coffee Roasters, Inc. is engaged in the specialty coffee and coffee maker businesses.

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).



To the downside, the vol difference opens up even wider (which is normal). The Mar options (weighted average) are priced at ~77 vol and the Apr options at ~62 vol.

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. We can see that the IV30™ is high relative to the short-term historical vol (HV20™) and the long-term historical vol (HV180™). Specifically:

IV30™: 62.86
HV20™: 53.79
HV180™: 53.51

This stock can gap -- check out several large moves highlighted in the chart (top portion).

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



Potential Trades to Analyze
First, just because the front is elevated to the back, doesn't mean a calendar spread is a good bet. We've seen above that GMCR can gap even without an earnings release to power the move. Having said that, let's look at some possible vol spreads.

1. Wide calendar Mar to Apr:
Sell the Mar 40/46 strangle @ 1.95 or ~78 vol.
Buy the Apr 40/46 strangle for $4.25 or ~62 vol.
The wide strikes (read: far OTM) give the stock some room to move before blowing through the short strikes. This trade bets that GMCR stays inside the ($40, $46) (ish) range by Mar expo.

2. Bet deltas through skew:
1. Buy the Mar 44/48 call spread for $1.25. This creates a 2.2:1 MaxGain:MaxLoss ratio and sells ~ the same vol it purchases in a call spread, which is not the normal case.
2. Buy the Mar 40/43 put spread for $1.10. This creates a 1.7:1 MaxGain:MaxLoss and sells ~ 3 point higher vol than it purchases -- not the greatest skew trade of all time, but worth checking out.

3. Buy the vol:
Buy the ATM vol in Mar and bet that the higher risk reflected in the Mar options is actually under priced. The 43 straddle can be bought for ~$4.25 and the stock has moved ~$2.50 today.

This is trade analysis, not a recommendation.

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SRA International (SRX) - Calls Trade on Pending Takeover Decision

SRX is trading $26.75, up 2.7% with IV30™ up 4.9%. The LIVEVOL® Pro Summary is below.



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SRA International, Inc. (SRA) is a provider of technology and consulting services and solutions primarily to government organizations.

Really interesting news here:
---
NEW YORK, Feb 22 (Reuters) - The auction for U.S. defense consulting company SRA International (SRX.N) has advanced to the final round, but there remain lingering doubts that the firm's influential founder will eventually be a seller.

At least four private equity firms -- Providence Equity, General Atlantic, Kohlberg Kravis Roberts & Co (KKR.N) and Veritas Capital -- have held discussions about buying SRA after the company hired Houlihan Lokey to advise on a potential sale, several people familiar with the matter said.

SRA set a mid-February deadline for final offers although it could take several more weeks for any deal to emerge, two of these people said. It could not be immediately learned if all of the buyout firms had submitted bids.
Source: DEALTALK-SRA auction doubts linger in final round, By Soyoung Kim and Nadia Damouni.
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The company has traded over 16,000 contracts in the first 45 minutes on total daily average option volume of just 878. Calls have traded on an 11:1 ratio to puts. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action. My best guess to order flow is this:
Mar 30 calls: Sales
Apr 30 calls: Purchases
Apr 35 calls: Sales
Jun 30 calls: Purchases
Jun 35 calls: Sales



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



We can see the elevated vol in the front two months while Jun is substantially lower -- the options market reflects news out before Jun. The parabolic (ish) skew in the front two months reflects upside and downside risk that are equal (ish).

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 most obvious thing I see is the elevated IV30™ (for good reason). It's interesting that on the last earnings a few weeks ago, the stock did pop over $30 momentarily.

Possible Trades to Analyze
The average of the Apr 25 and 30 straddles (27.5 straddle) is ~ $5.30. Although the vol is elevated (Charts Tab), you could make an argument that the straddle will move more than that if the news that comes out is definitive.

1. Buy "expensive" vol:
Buy the Apr 25/30 strangle for $2.90 to bet on a big stock move.
Of course, you could also make an argument to sell "expensive" vol. I know, that's not a lot of help...

2. Cheap bet to the upside:
Buy the Apr 35/40 call spread for $0.25 and sell higher vol than you purchase in a call spread.

3. Bet to the downside:
Buy the Apr 22.5/25 put spread for $0.85. This creates a 1.6:1 MaxGain:MaxLoss ratio.

This is trade analysis, not a recommendation.

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Mesabi Trust (MSB) - Depressed 60 Day Vol and Earnings

MSB is trading $37.44, up 0.2% with IV30™ down 1.4%. The LIVEVOL™ Pro Summary is below.



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Mesabi Trust (the Trust) conserves and protects the Trust Estate, and collects and distributes the income and proceeds there from to the Trust’s certificate holders.

I found this stock using a real-time custom scan. This one hunts for low vols. The third month also has an earnings event and this stock can move on that news.

Custom Scan Details
Stock Price >= $7 <= $70
IV60™ >= 1
IV60™ - HV60™ <= -8 >= -40
HV180™ - IV60™ >= 8
Average Option Volume >= 1,200
Industry != Bio-tech

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 intermediate-term implied vol (IV60™) that is depressed both to the intermediate stock movement (HV60™) 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) and want to avoid bio-techs (and their crazy vol).

The MSB Charts Tab (vol only) is included (below). IV60™ - yellow vs HV60™ - blue vs HV180™ - pink).



We can see:
IV60: ~50.87
HV60: 66.35
HV180: 62.47

So, IV60 is depressed relative to the intermediate-term and long-term realized movement of the stock. We can also see that the stock moved a good amount off of earnings last cycle but for the last several weeks, the stock has just muddled around. This is of particular importance if we're examining getting long the juice.

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



Note that Jun ATM vol is ~52, which is higher than Mar and Apr. The next earnings date for MSB is projected to be either right at the end of the Apr cycle or just after. Apr expo is 4/16 and the last two earnings dates in April (last two years) were 4/16 and 4/15 respectively... Tricky.

Possible Trades to Analyze
1. Start simple:
Buy the Jun 35/40 strangle for $5.70. Wow, that's a lot of premium... Just sayin'

2. Add some sales:
Do #1 but also sell the Jun 30/45 strangle @ $2.25 for a $3.45 total debit. Note that this does leave a net position with a 0.44:1 MaxGain:MaxLoss.

3. Add some risk:
Do #2 but sell the short strangle twice, yielding a $1.20 debit but naked short the wings if the stock gaps below $27 (ish) or above $48 (ish).

This is trade analysis, not a recommendation.

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Puda Coal (PUDA) - Calls Trade Size in Earnings Month

PUDA is trading $12.58, up 5.0% with IV30™ up 11.9%. The LIVEVOL® Pro Summary is below.



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Puda Coal, Inc. (Puda) is a supplier of high-grade metallurgical coking coal to the industrial sector in the People’s Republic of China (the PRC or China).

The company has traded over 15,000 contracts on total daily average option volume of just 1,875. Calls have traded on a 9:1 ratio to puts. The action is in the Apr 12 calls where nearly 12,000 have traded. The company's next earnings release is due out at the end of March (or early April). The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the Apr 12 calls are mostly opening (compare OI to trade size). The question is the side (buy or sell). This is a good lesson in order flow -- check this out.



1. Let's look to the largest trades in the Apr 12 calls today from the Time & Sales Tab (below).



I've highlighted the single largest trade -- a 500 lot trading $1.30 on a $1.30 x $1.45 market. Since it went off on the bid, it must be a sale right?... Or not... Holding the CTRL button down and clicking on the trade pops out the Level II quotes at the time of the trade (below).



We can see that PHLX went $1.30 bid for 1,573, a good dime through the next best bid on CBOE. So, in English, those trades look to be buyer initiated -- the contracts were bid up. The circumstantial confirming evidence is the rise in vol across the board, but most notably in Apr which is up more than 7 vol points (Mar is up 4.1).

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



We can see the Mar (red) and Apr (yellow) upside is bent up a bit to the order flow. This is more confirming circumstantial evidence that the orders are purchases.

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 how the stock has essentially gone nowhere of late. The IV30™ is just now approaching the long-term historical trend (HV180).

This is trade analysis, not a recommendation.

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Central European Distribution (CEDC) - Vol Opportunities After Stock Collapse

CEDC is trading $12.77, down small with IV30™ down 5.6%. The LIVEVOL® Pro Summary is below.



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Central European Distribution Corporation (CEDC) operates primarily in the alcohol beverage industry.

Here's the news from earnings results on 3-1-2011:
Shares of Central European Distribution (Nasdaq: CEDC) dropped as much as 30% in intraday trading Tuesday after the vodka maker's quarterly results and full-year forecast fell well below Wall Street expectations.
Source: The Motely Fool, by By Brian D. Pacampara.

So the stock went from $22.85 down to $14.33 in one day, and now has dipped even lower. Today the company has traded over 5,000 contracts on total daily average option volume of just 1,405. Puts have traded on a nearly 6:1 ratio to calls and a vol difference has opened up between the front two months as well as a two-sided skew in the front month. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) is included below. The action is the back months, but I've only included the front months as it's the vol diff and front month skew that interest me.



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



We can see the vol difference between the front two months and the skew shape in Mar where the ATM vol is below both the upside and the downside.

We could make a pretty good argument that vol and skew should be elevated in the front month given the news, the initial stock move and then the residual stock move.

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 tumbled off earnings and has continued its downward momentum.

Possible Trades to Analyze
1. Put spread in Mar:
To bet that the stock keeps sinking, you can examine purchasing the Mar 10/12.5 put spread for $0.50. That yields a 4:1 MaxGain:MaxLoss ratio and sells ~107 vol ($0.10) and purchases ~82 vol. So a 25 point skew scalp.

2. Put spread in a Mar/Apr calendar:
If you think CEDC is headed lower, but will stay above $12.5 (ish) to Mar expo, you can examine the Mar/Apr 12.5 put spread for $0.55 (or less). That's ~ an 8 point vol difference between the front two months. An extension to this trade is to sell the Apr 10 put after Mar expo if the trade works well. This would allow a leg into an Apr 10/12.5 put spread for a discount.

3. Call spread:
If you want to make a bet that CEDC rallies from here you can examine a Mar/Apr call spread for $0.95, or even try a Mar 12.5/15 call spread. Both of these trades would sell higher vol than they purchase.

This is trade analysis, not a recommendation.

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Applied Micro (AMCC) - Calls Trade Size Through the Offer

AMCC is trading $10.50, down 0.6% with IV30™ unched. The LIVEVOL® Pro Summary is below.



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Applied Micro Circuits Corporation (AMCC) provides semiconductor solutions for the enterprise, telecom and consumer/small medium business (SMB) markets.

The company has traded 6,885 contracts on total daily average option volume of just 436. Every contract traded has been a call and all but 116 have been in the Aug expo cycle. The action is in the Aug 12.5 and 15 calls. 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 largest trade was a 3,323 lot in the Aug 15 calls -- the color I got was customer purchases outright (no stock). In fact, all of the Aug 15 calls look to have traded through the offer and the largest Aug 12.5 calls (800x) are also through the offer.

Stock volume is pretty normal for this time of day to the average, so I don't see a bunch of stock trading with any of these calls.



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 is choppy. The IV30™ is trading below the historical vols (both short-term and long-term). Note that the Aug vol though is over 43 and May is over 41 (IV30™ is just below 40) so the options reflect greater risk in the outer months than the near-term months.

This is trade analysis, not a recommendation.

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