SunPower (SPWRA) - Elevated Front Skew on Stock Pop

SPWRA is trading $16.06, up 10.8% with IV30™ down 1.2%. The LIVEVOL® Pro Summary is below.



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SunPower Corporation (SunPower) is a vertically integrated solar products and services company that designs, manufactures and markets high-performance solar electric power technologies.

Alternative energy is up today on the nuclear plant scare in Japan, though as Cathy Clay of Livevol Strategy Group reminded me... Didn't the 40 year old nuclear reactors hold up pretty well given the circumstances?

The company has traded nearly 30,000 contracts on total daily average option volume of just 8,879. Calls have traded over 23,000x for a 3.3:1 ratio to puts. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action. Sort of rapid fire in the front two month calls. Interestingly, the Mar vol is up a lot (more than 10 points) but Apr vol is down 0.7 points. Hmm...



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



So a couple things here really jump out at me:

1. The month-to-month vol diff that has opened up.
2. The huge upside skew in Mar (red line). For example, the Mar 17 calls are priced at ~73 vol while the Apr 17 calls are priced at ~ 53 vol.

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 IV30™ is elevated relative to both the short-term realized (HV20) and the long-term realized (HV180). But then again, vol is up across the board.

Possible Trades to Analyze
1. If you're a bull on the solar companies (or SPWRA, specifically), try a call spread in Mar:
Buy the Mar 16/17 call spread for $0.36. That trade sells slightly higher vol than it purchases, and creates a 1.78:1 MaxGain:MaxLoss ratio with $0.06 of parity as of right now.

2. Bullish, but also feel front vol is too high:
2a. Buy the Mar/Apr 16 call spread for $0.62 and scalp ~16 vol points.
2b. Buy the Mar/Apr 17 call spread for $0.51 and scalp ~20 vol points.

3. Delta neutral but want to calendar spread the elevated front:
Sell the Mar 16 straddle @ $0.82 ~ 71 vol.
Buy the Apr 16 straddle for $2.05 ~57 vol.

4. SPWRA has moved $1.56 today and the ATM straddle in Mar (three days to go) costs ~$0.88. It's at least worth analyzing a purchase of that straddle.

This is trade analysis, not a recommendation.

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Big Lots (BIG) - To Own or Not to Own, That is the Vega

BIG is trading $42.09, down 1.5% with IV30™ up 9.9%. The LIVEVOL™ Pro Summary is below.



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I wrote an article on this guy for TheStreet.com's OptionsProfits, so no detailed trade discussion here, but -- this is an interesting stock to examine.

I actually found it using on two real-time custom scans. Oddly, the types of trades to analyze are in direct opposition.

1. High vol scan:

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

2. Second to third month calendar spread:

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 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.

So, the first scan looks to analyze short vega positions, the second scan looks to analyze long vega (long the back month) positions. Hmm...

The BIG 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).



We can see:
IV30™: 52.65
HV20™: 25.65
HV180™: 31.70

So IV30™ is elevated relative to the short-term and long-term realized movement of the stock. Note also the huge stock pop on 2-7-2011. That was a response to this news story:
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Retailer Big Lots (BIG) soared 15% just minutes before trading closed on a Bloomberg report that the company had hired Goldman Sachs (GS) to help its “explore strategic options”, including a possible sale.
Source: Barron's, by Avi Salzman
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So, the vol is elevated for a pretty good reason(s). Let's look to the Skew Tab to peak at the month-by-month vols by strike.



And now we can see how the calendar spread scan was triggered. The second month is substantially elevated to the third. Note that BIG has earnings due out in the end of May/early Jun, so the calendar spread not only purchases lower vol, but it also own a vol event (earnings).

Let's look to the Options Tab (below).



We can see specifically that Apr vol is 52.65 while Jul is 35.91.

Possible Trades to Analyze
I guess the question is: Is the vol high or low? Would you want to buy vega or sell it?

I guess that was actually two questions...

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Lubrizol (LZ) - Lucky Bet On Takeover...?

LZ is trading $134.38, up 27.5% on a takeover with IV30™ down 86.9%. The LIVEVOL® Pro Summary is below.



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Cecile Vannucci at Bloomberg showed me this one (she and Jeff Kearns wrote about it earlier). On 3-9-2011 a large trade crossed the tape in the Apr 100 calls. Specifically 2168 where purchased for $2.35. The historical trades snap is included below.



The company averages ~335 calls a day and nearly 7 times that went up in this one print. I've included the Options tab as of the close of that day below.



We can see a total of 2,636 traded on essentially no OI. These were opening purchases. I also didn't see any large stock prints that day -- this feels like it was a naked purchase, but of course, I don't know for sure.

And today:
Berkshire Hathaway Inc., owned by billionaire Warren Buffett, has agreed to buy Lubrizol Corp., the world's leading producer of lubricant additives, at about 9 billion U.S. dollars, according to a statement released on Monday by the company.

Berkshire Hathaway Inc. said that it would pay 135 dollars a share in cash, 28 percent more than Lubrizol's closing price on March 11.
Source: Comtex News Network.

Let's look to the Options Tab and largest trade today (below).





The largest trade was a sale of 2,650 calls @ $23.90. Assuming this is the same position, that's 2,650 x 100 x ($23.90 - $2.35) = $5.71 million in five days.

This is trade analysis, not a recommendation.

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UPDATE: Aflac (AFL) - Stock Dips, Vol Rises, But Order Flow is Backwards

UPDATE: This is an update to the article posted last Friday:
Aflac (AFL) - Puts Trade on Earthquake and Pro Order Flow Analysis

With unfortunate news coming out of Japan and the ambiguity in any definitive measure of the total damage, AFL is getting hit again.

AFL is trading $53.42, down 3.8% with IV30™ popping 14.5%. The LIVEVOL® Pro Summary is below.



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Today the company has traded over 12,000 contracts in the first three hours on total daily average option volume of just 5,074. Puts have traded on a 3.2:1 ratio to calls with the heaviest action in the Apr 50 puts -- but I believe these are substantially sales. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the Apr 50 puts are mostly opening.  Again, the order flow looks like someone is offering them down.  So, selling in the face of a dipping stock and rising vol.



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



We can still see the elevated front month vol relative to the second. I've included the skew chart as of Friday below for comparative purposes.



If we look at the absolute levels (y-axis), we can see the substantial vol increase today off of the weekend's developments.

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 same recent pattern persists -- stock dipping hard as the vol spikes.

Possible Trades to Analyze
This goes straight to expectations. If you believe that the news from Japan will be market moving, then selling the front month vol is likely not the bet to make.

But, if you feel the market will stay here (ish), then selling the elevated vol may be worth examining.  Calendar spreads (Mar/Apr) are one way -- it seems like the order flow today has been simply selling the Apr vol.  That's a bet that things will not get worse and vol will dip as there's more vega in Apr options than Mar.

This is trade analysis, not a recommendation.

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Star Scientific (CIGX) - Follow up: "Most fascinating story I have ever read"

This is a second follow up to something that I described on March 25, 2010 as, "simply the most fascinating story I have ever read related to finance."

You can read the first follow up here:
CIGX - 450% Run up - The story behind the story - behind the story

CIGX closed Friday up 24.5% to $2.95. In pre-market, it's trading over $3.30. The LIVEVOL® Pro Summary is below.



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Star Scientific, Inc. (Star Scientific) is engaged in the development of very low-tobacco-specific nitrosamines (TSNA), non-fermented smokeless tobacco products. The Company is also engaged in the development, implementation and licensing of its technology for the curing of tobacco so as to prevent the formation of carcinogenic toxins present in tobacco and tobacco smoke, primarily the TSNAs and manufactures, sells, markets and/or develop very low-TSNA dissolvable smokeless tobacco products, including ARIVA compressed powdered tobacco cigalett pieces and STONEWALL Hard Snuff and modified risk tobacco products.

The link to the article that blew my mind in 2009, is here (a MUST read for the intellectually curious):
Largest U.S. Patent Infringement Case Ever is Controversial Too

On Friday, the company traded 48,436 contracts on total daily average option volume of just 2,741. Calls traded over 17,000x for a nearly 16:1 ratio to puts. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action. Note that Mar was up more than 50 points on Friday and April was up more than 44.



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



So on Friday, the upside in Mar was super bid, while Apr skew in general was flat. I would have expected the skew to have been parabolic in April, but... I would have been wrong.

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).



Pretty eye popping for sure -- the stock has exploded and the IV30™ has joined the ride. I wonder what else is on the horizon for this "little guy"... Or .. is it soon to be a "big guy?"

This is trade analysis, not a recommendation.

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XL Capital (XL) - Vol Pops in Insurer

XL is trading $22.11, down 0.5% with IV30™ up 15.1%. The LIVEVOL® Pro Summary is below.



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XL Group plc (XL), through its subsidiaries, is a global insurance and reinsurance company providing property, casualty and specialty products to industrial, commercial and professional firms, insurance companies and other enterprises on a worldwide basis.

Brendan Conway wrote a nice article in WSJ (online) today. You can read that article here:Quake, Tsunami Spur Japan Bears to Action

The company has traded over 11,000 contracts on total daily average option volume of just 2,264. Puts have traded on a 3.7:1 ratio to calls -- this is another insurance scare on the earthquake in Japan. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates the action in the April 20 puts -- the OI is very small relative to volume. These look like opening long positions in the puts.



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



The skew is actually quite nice -- the downside has a normal shape (increasing to OTM) and the upside is bid as well reflecting wing risk to both directions.

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).



Very much like AFL earlier today, the stock is down pretty significantly and the IV30™ is exploding. It's interesting to note that the short-term realized vol (HV20) is just about equal to the short-term IV (IV30™). Or, in English, the vol looks sort of fairish right now if the stock keeps moving this much.

This is trade analysis, not a recommendation.

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Aflac (AFL) - Puts Trade on Earthquake and Pro Order Flow Analysis

AFL is trading $54.92, down 1.4% with IV30™ up 14.4%. The LIVEVOL® Pro Summary is below.



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Aflac Incorporated (Aflac) is a general business holding company and acts as a management company, overseeing the operations of its subsidiaries. Its principal business is supplemental health and life insurance, through its subsidiary, American Family Life Assurance Company of Columbus (Aflac), which operates in the United States (Aflac U.S.) and as a branch in Japan (Aflac Japan).

The company has traded over 7,600 contracts in the first hour on total daily average option volume of just 4,890. More specifically, over 6,00 puts have traded on 2,772 average, yielding a 3.7:1 ratio to calls. The action is n the front month ATM and 50 puts. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the puts have an existing large OI. As far as I can tell, that existing OI is long -- based on the trades on 2-4-2011.



I found the date when OI initially rose from the level II pop-out from the Options Tab (click on the strike). The action today looks like long Mar 55 puts. Here's a very important note on order flow. First, the largest trades snapshot is included below.



Now, holding the CTRL button down for the two trades I've highlighted (the two largest ones) - we can see that the markets were bid up (look at the highest bid other than the price that traded.





So these trades were buyer initiated and I'm guessing the vast majority (if not all) of the quick hit news services/trading alert systems will read these as trades on the bid, so "sales." That's clearly incorrect, in my opinion.

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



We can see a substantial vol difference between the front two months. AFL

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 dropped substantially of late -- two days ago AFL closed at $56.81. On a side note, I read this tweet from CNBC: "Aflac Pledges 100 Million Yen to Red Cross Disaster Relief for #Japan." Good for them.

This is trade analysis, not a recommendation.

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