SandRidge (SD) - Option Volume Explodes for Consecutive Days; OTM Calls Trading Size, Skew Calendar Diff Opens and Vol Hits Annual High

SD is trading $7.17, up 5.6% with IV30™ up 7.0%. The LIVEVOL® Pro Summary is below.



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SandRidge Energy, Inc. (SandRidge) is an independent oil and natural gas company. It is engaged in development and production activities related to the exploitation of its holdings in West Texas and the Mid-Continent area of Oklahoma and Kansas.

This is a vol and stock note -- focusing on a skew vol diff through a calendar and rising stock and a new overall vol high. Let's start with some order flow.

The company has traded nearly 195,000 contracts on total daily average option volume of just 19,435. Calls have traded on a 2.9:1 ratio to puts with the action in the Jun 7, Jun 10 and Dec 10 calls. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the calls in Dec are mostly opening (compare OI to trade size). These look like long positions with an existing OI which opened up almost entirely yesterday in a single 11,000 contract call purchase. But that's not even close to the whole story, as those calls look like they may have traded in a spread, or were mitigated by a Dec 8 straddle trade for size (and I can't tell the direction). 

Yesterday SD traded over 150,000 contracts -- so this is the second day of enormous trade volume. The stock volume is already about 2x the daily average as well today, and traded 2x yesterday too. In any case, the extreme volume yesterday is getting outpaced today.



Note across the top of the options tab how elevated Dec vol is to Jan. The Skew Tab snap (below) illustrates the vols by strike by month.



We can see that Dec vol is well above Jan, but even more eye catching is the upside vol diff that has opened up between those two front expiries. Full disclosure: I traded that calendar small (so far) today.

Finally, the Charts Tab (six 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 stock side we can see the abrupt run-up of late -- the stock has risen from $5.19 on 11-14-2012 to now above $7. The 52 wk range in stock price is [$4.81, $9.04].

On the vol side we can see the meteoric rise in vol as the volume has increased. I've included a one-year IV30™ chart below.



We can see that spike up of late -- quite abrupt and into new annual high territory. The implied has reached over 125% in this name back in August of 2011, so while the current IV30™ is an annual high, it is not a multi-year high. This will be a fascinating one to watch though Dec expiry. I do note that there's a ton of volume in Jun as well.

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LinkedIn (LNKD) - Vol Nears New All-time Low; Should it?

LNKD is trading $108.95, up 1.1% with IV30™ unched. The LIVEVOL® Pro Summary is below.



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LinkedIn Corporation (LinkedIn) is a professional network on the Internet with more than 90 million members in over 200 countries and territories.

I last wrote about LNKD on 8-14-2012, noting how low the vol was. You can read that post here:
LinkedIn (LNKD) - Should Risk be at Lowest Levels... Ever?.

I've included the Symbol Summary from that date, below:



As the title postulates, I wondered if the vol for LNKD should have been at an all-time low. Apparently, it should have been, as the stock has moved $4 and the implied is even lower today (see top Symbol Summary).

I found LNKD again today b/c of its low vol -- using a real-time custom scan that hunts for depressed vols. I ask again, should LNKD vol be this low?... Maybe the answer is yes again... or maybe six vol points lower and out of the summer doldrums is the time that vol will rise (or stock will move more than the implied).

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile LTE 10
Average Option Volume GTE 1,200

The goal with this scan is to identify short-term implied vol (IV30™) that is depressed to its own annual history (at most in the 10th percentile). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), and I want a minimum vol level so I don't pick up any boring ETF’s (or whatever). The stock price requirement helps me identify names that have enough strike prices to trade or spread.

The one-year LNKD 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).



On the stock side we can see the rather quiet period from Aug until now, although there was a peak into the mid $120's in late Sep / early Oct.

In order to get a better look at the vol, I have isolated the one-year IV30™ chart, below.



We can see the extreme peaks into earnings (which is normal), and the troughs that have formed after earnings. The noteworthy trend is that the troughs keep getting lower. It's the value today that caught me eye. The 52 wk range in IV30™ for LNKD is [34.56%, 91.29%], putting the current level in the 3rd percentile (annual).

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



Across the top we can see the monthly vols are priced to 35.73% and 36.58% for Dec and Jan, respectively. While the Dec vol staying low is a reasonable result, I keep pointing to the fact that the Fiscal Cliff and then the return to focus on Europe (after the Fiscal Cliff) are both due out in the Jan options cycle. And while Christmas and New Year's are in Jan expiry (vol lowering events), almost any company hitting annual lows in vol right now feels a bit... weird... Let's see what happens to LNKD this time...

This is trade analysis, not a recommendation.

Apple (AAPL) - Have We Moved into a Totally New Volatility Paradigm for This Company? Has Everything Changed?

AAPL is trading $549.06, down 4.6% with IV30™ up 15.5%. The LIVEVOL® Pro Summary is below.



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Apple Inc. (Apple), along with its subsidiaries, is engaged in designing, manufacturing and marketing mobile communication and media devices, personal computers, and portable digital music players.

This is a vol and stock note on the largest company in the world. I see a potential paradigm shift in the way the option market reflects risk in APPL -- and the shift is not trivial.  I'll even call on your knowledge of Econ 101 from your college days.  But first, let's start with some news from today:

---
(AAPL) shares fell more than four percent following news that margin requirements are being raised to 60 percent from 30 percent by COR Clearing.

The tech giant is down more than 20 percent from its record high of $705 in September and is trading back in bear market territory.

Source: CNBC via Yahoo! Finance; Apple Stock Plunges on Higher Margin Rules.
---

There is also some technical stuff in the article (i.e. technical analysis on the charts), for those interested.

Let's turn to the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



In terms of a six-month return the stock has gone from $562.83 (6-5-2012) to now just under $550 for a modest 2.4% decline. Of course, the focus has been over the last 2.5 months -- AAPL hit an all-time high of $705.07 on 9-21-2012 and since then (as of this writing) is down over 22%. Note the free-fall from the all-time high to the low on 11-15-2012. The 52 wk range in APPL is [374.36, $705.07].

On the vol side, we can see recent rise in the implied. For a clearer look at the IV30™, I have included a six-month implied chart in isolation, below.




I've highlighted the recent run up as well as the most recent high on 10-19-2012. The 52 wk range in IV30™ for AAPL is [18.18%, 45.81%], putting the current level in the 66th percentile.

But, here's what really caught my eye. The most recent closing low in stock price was on 11-15-2012 when AAPL closed at $525.62. At that time, the IV30™ was rising and hit 32.55%. Shortly thereafter, we can see the stock rise again, only to now start another downward trend. But, with the stock $20 lower then than it is today and in what for all intents and purposes was an absolute free fall from an all-time high (see the chart again), the implied only hit 32.55% on 11-15-2012.

But now, with the stock having already reversed the straight down move from the all-time high, and now headed on a new downward trajectory (after a small recovery), the vol has expanded (increased) significantly more to over 36%. So we see a $20 higher stock price now, with a free fall having ended, yet the implied is now higher than it was during the free fall. In English, the risk reflected by the option market has shifted -- it's higher.

Vol can behave much like demand (in fact, vol is demand for protection (puts) or speculation (calls)), where there can be an increase in quantity demanded (that's moving on the same demand curve to the right) and an increase in demand (which is a totally new demand curve drawn above the prior one). I've included a contrived picture of some "widget" demonstrating the difference in an increase in quantity demanded (moving from one red dot to the other) and an increase in demand (moving from blue Demand curve D to red Demand curve D'), below.



IMHO, AAPL is seeing a new demand curve (i.e. vol) -- we're no longer moving on the same vol curve and have moved to a new (higher) one. Like the difference between an increase in quantity demanded and an increase in demand, AAPL is showing a brand new risk curve -- a new paradigm if you will -- and it reflects higher risk.

This will be an interesting one to watch. If the hypothesis is correct, AAPL will be at elevated vol levels relative to the past in all situations (going up, standing still and going down). Those situations could (should) include earnings.

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Illumina (ILMN) - Vol Comps point to Elevated Risk in Next Three Weeks; Calendar Spread Opens as Well

ILMN is trading $51.93, down 0.4% with IV30™ up 3.9%. The LIVEVOL® Pro Summary is below.



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Illumina, Inc. (Illumina) is a developer and manufacturer of life science tools and integrated systems for the analysis of genetic variation and function.

I found this stock using a real-time custom scan I built in Fidelity. This one hunts for calendar spreads between the front two monthly expiries. I've included the results of the scan below.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 > 7
IV30™ GTE 30
Average Option Volume GTE 1,200

The goal with this scan is to identify back months that are cheaper than the front by at least 10 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume) and enough strikes to spread and thus a minimum stock price. I also require a minimum vol level in order to avoid any boring ETFs (or whatever).

The six-month ILMN 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).



On the stock side we can see a nice rise over the last six months as the equity price has gone from $40.50 to now over $52 in half a year (~30%).

On the vol side we can see how the implied is now diverging from the two historical realized vol measures (both short and long-term). It's interesting to note how the IV30™ has climbed after a short lived drop following earnings. The vol comps are rather eye popping:

IV30™: 57.82%
HV20™: 27.09%
HV180™: 30.18%

In English, the option market reflects much higher risk in the next thirty days than the stock has realized in the recent and long-term past -- a compelling vol phenomenon IMHO.

It's the Skew Tab that will show us the calendar vol diff.



We can see how elevated Dec is to the Jan options -- in particular to the upside. That vol diff is double digits.

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




Across the top we can see that Dec is priced to 61.27% while Jan is priced to 53.52% -- so about an eight point vol diff. But, looking to the upside, for example the Dec/Jan 60 call spread, we can see that vol diff opens to over 11 vol points, and the Dec/Jan 65 call spread opens to ~17 vol points.

This is trade analysis, not a recommendation.

Facebook (FB) - Vol Falls as Stock Rises; Two Vega plays if Vol is Too Low... But is It?

FB is trading $27.92, down 0.3% with IV30™ popping 9.3%. The LIVEVOL® Pro Summary is below.



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Facebook, Inc. is a United States-based company, which operates as a social networking Website. The Company develops technologies that facilitate the sharing of information through the social graph, the digital mapping of people's real-world social connections.

This is a stock and vol note -- specifically depressed vol in a stock that has been ripping of late. An interesting vol phenomenon now exists. I found FB using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price GTE $7
IV30™ - HV20™ LTE -8 GTE -40
HV180™ - IV30™ GTE 7
Average Option Volume GTE 1,200
Industry != Bio-tech
Days After Earnings GTE 32

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 short-term implied vol (IV30™) that is depressed 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 purchasing depressed IV30™ relative to HV20™ simply because of a large earnings move.

The six-months FB 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).



On the stock side we can see the impressive recovery over the last four weeks. On 11-9-2012, FB closed at $19.21 and as of today the stock is up 45% from that level.

But, this is a vol note -- and the phenomenon I'm interested in is how the implied is trading below both the short-term and long-term historical realized vols.

I've included a focused a 3-month vol chart, below.



We can see much more clearly how the IV30™ is trading well below the HV20™ and HV180™. The IV30™ is also trading low relative to its own history -- the range for IV30™ since FB started trading is [42.19%, 81.51%], putting the current level in the 22nd percentile.

In English, with the stock ripping the implied has dipped relative to all measures, but then ask yourself -- or anyone else for that matter, "do you feel confident with FB's valuation and recent run up?"

Let's look to the Skew Tab, and we can see another interesting vol set-up.



We can see how Dec is elevated to Jan -- which is a little weird since Dec nears the "tired" period at the end of the year. And yes, it's actually Jan expiry that has Christmas and New Year's -- it also has the post fiscal cliff world and the return of heavier trading volume (probably). The next earnings release for FB should be after Jan expiry, so we don't get that embedded vol even in there, but still, with vol this low and the stock rising so abruptly, a fiscal cliff decision ahead and then a re-focus on the Eurozone -- the vol in Jan feels... well, it feels low...

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



Across the top we can see the monthly vols are priced to 51.97% and 49.84% for Dec (monthly) and Jan. It seems like there is a long vega play on the board either through a calendar or a plain vanilla vol purchase. Ya know, then again, that could be totally wrong and a disastrous trade.

This is trade analysis, not a recommendation.

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Nexen (NXY) - Huge Vol Diff Opens as Implied Rises 250% Since Deal Announcement

NXY is trading $23.33, down 2.3% with IV30™ up 19.9%. The LIVEVOL® Pro Summary is below.



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Nexen Inc. (Nexen) is an independent global energy company. The Company’s conventional oil and gas assets consist of large acreage positions in select basins, including the United Kingdom North Sea, deep-water Gulf of Mexico and offshore West Africa.

I found this stock using a real-time custom scan I built in Fidelity. This one hunts for calendar spreads between the front two monthly expiries.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 > 7
IV30™ GTE 30
Average Option Volume GTE 1,200

But the real news behind this company occurred on 7-23-2012, when a takeover bid was made and agreed upon. I wrote about that day b/c of some apparent insider trading. You can read that blog here:
Nexen (NXY) - Pre-Takeover Order Flow Looks Like Insider Information; How to Make $32 million (3,200%) in a Week


Today I note the rise in vol and even more interesting, the rather dramatic calendar spread that has opened up. Let's start with the six-month Charts Tab, below. The top portion is the stock price the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side we can see the abrupt gap up on the takeover news and then the quiet period following. I do note the recent stock movement which has moved from absolutely still waters to more bumpy.

On the vol side, the story begins to unfold. Check out the rise in the implied of late. At the time of the takeover announcement IV30™ dipped to 25.88%. Today we can see the implied has risen to nearly 90%. So, a huge increase in risk as reflected by the option market.

Let's turn to the Skew Tab and we'll see a very interesting term-structure shape.



Note that for all three front expiries the upside skew slopes down, or said differently, the downside risk rises rather abruptly from the upside risk. This happens in a takeover when the upside is capped (the takeover price) but the downside is left open (if the takeover doesn't go through). What's remarkable here is the rather massive vol diff between the front three months -- and in particular between month 1 and month 3. Something is coming up in Dec -- a finalization, a decision, a vote, a something...

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



Across the top we can see the monthly vols are priced to 93.87%, 72.88% and 52.56%, respectively for Dec, Jan and Mar. While Dec and Jan overall show a ~21 point vol diff, look at the Dec/Jan 20 put spread -- that shows a 27 vol point diff. Similarly, Dec to Mar shows a ~40 vol point diff, but the Dec/Mar 20 put spread shows ~50 vol point diff. Although the spreads look compelling, this could easily be one where owning the vega in Jan or Mar could be a huge loser with the options literally going to zero if the deal is finalized. Ya know... or not...

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This is trade analysis, not a recommendation.

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Tesla motors (TSLA) - Vol Reaches Multi-year Lows as Stock Pops

TSLA is trading $34.21, up 6.4% with IV30™ down 0.5%. The LIVEVOL® Pro Summary is below.



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Tesla Motors, Inc. (Tesla) designs, develops, manufactures and sells electric vehicles and advanced electric vehicle powertrain components.

This is a vol note -- specifically a company hitting a multi-year low in the implied. I found TSLA using a real-time custom scan. This one hunts for depressed vols.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile LTE 10
Average Option Volume GTE 1,200

The goal with this scan is to identify short-term implied vol (IV30™) that is depressed to its own annual history (at most in the 10th percentile). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), and I want a minimum vol level so I don't pick up any boring ETF’s (or whatever). The stock price requirement helps me identify names that have enough strike prices to trade or spread.

The 2-year TSLA 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).



On the stock side we can see that while there have been some ups and downs, the stock has been pretty steady. The 52 wk range is [$22.64, $39.95].

But, this is a vol story -- so let's turn to the two-year IV30™ chart, below.



We can see that awesome decline in the implied of late, pushing well into multi-year lows as the stock has risen from ~$27 to now just under $34. The 52 wk range in IV30™ is [38.27%, 90.05%], making the current level a new annual (and multi-year) low.

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



Across the top we can see the monthly vols are priced to 37.15%, 41.23% and 47.59% for Dec, Jan and Mar, respectively. I dunno, multi-year low in vols right now -- stock up 6% today alone... Hmm...

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This is trade analysis, not a recommendation.

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Celsion (CLSN) - Odds of bankruptcy, Success and Date for "Make or Break" Cancer Drug Trial Results

CLSN is trading $7.22, down 7.4% with IV30™ up 6.5%. The LIVEVOL® Pro Summary is below.



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Celsion Corporation is an oncology drug development company focused on the development of treatments for those suffering with difficult to treat forms of cancer. As of December 31, 2011, the Company's product ThermoDox is being evaluated in a Phase III clinical trial for primary liver cancer (the HEAT study), a Phase II clinical trial for colorectal liver metastasis (CRLM) and a Phase II clinical trial for recurrent chest wall breast cancer.

This is a bio-tech note -- one with huge vol and some fascinating spreads and option pricing which lead to back of the envelope probability pricing. Let's start with the Charts Tab (one year) below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side we can see the massive run up of late pushing the stock above $7 as the implied rises. There is an interesting article on Seeking Alpha from which I have taken a little snippet:

---
We are getting awfully close to January 2013 top-line release of "the Phase III HEAT Study, a multinational, double-blind, placebo-controlled, pivotal study of ThermoDox in combination with radiofrequency ablation (RFA) for the treatment of hepatocellular carcinoma (HCC), also known as primary liver cancer" -- the following 5 reasons additional reasons to be bullish now assume positive top-line results and what it means for shareholders.

Of course, all of this completely depends and anticipates top line data early next year being positive or the CLSN stock price will take a dramatic hit. This is a binary speculative event that could make or break CLSN. Make no mistake about it -- failure on the Phase III trials would cause CLSN to take a hit. Despite this very real risk, there are many reasons to be bullish.

Source: Seeking Alpha via yahoo! Finance; 5 More Reasons To Be Bullish On Celsion Now, written by Alex Heisenberg.
---

Binary event is the key, with the second key being, we don't know exactly when in Jan we get the results. That means elevated vol (binary event) and a confused Skew from which we can draw our own probabilities in terms of best guess of release of data.

Let's turn to the Skew Tab, below.



We can see how elevated Jan and Feb are to Dec -- so the option market reflects a much greater likelihood that the event (binary news) comes out after Dec expiry. We can also see that Feb is elevated to Jan, so the option market reflects a greater likelihood that the news comes out after Jan expiry but inside Feb expiry.

Let's turn to the Options Tab and start putting some probabilities together -- both for date of news and probability of total collapse (bankruptcy).



Probability of Timing:
Jan vol is ~230%, and Feb vol is ~294%. A back of the envelope probability calculation would say the odds of the release of news in Jan are 230/(230 + 294) and, of course, the odds for Feb are 1 - P(Jan). So, in English, the option market reflects ~44% chance the news is out in Jan and 56% chance the news is out in Feb. Now, in all fairness, this has so many flaws in its logic I could write an entire blog on it -- but this is just quick math -- to get a feeling for the timing of this event.

Bottom line: The Skew tab clearly reflects that there is a greater likelihood that the event (binary news) occurs in Feb rather than Jan, but that there is some ambiguity.

We can also look to the Feb "disaster" puts ($1 strike). The mid-market value is ~$0.225. A sale at that price yields a max loss of $0.775. The max gain/max loss ratio gives us another back of the envelope result -- the odds are ~1/4 that the company goes bankrupt off of this news by Feb expiry. Again, there is an entire blog's worth of assumptions that are made here in using this methodology, but this is how we do it quickly on the floor.

Bottom line: There is a non-trivial chance that bad news means CLSN is no more.

Also interesting are some of the spreads on the board. I personally sold the Feb 2.5/2 put spread @ $.25. That makes a max loss / max gain of 1:1 (.25:.25). Back of the envelope, the price for that spread reflects a 50/50 chance that the company trades below $2. My trade (a sale of those odds) is a belief that the "real" odds are in fact lower (I sold a 50/50 chance). You can do this kind of analysis on literally hundreds of permutations.

For the very probability happy traders, you can do the same in a calendar spread and then make use both of the likelihood of news coming out in Jan expiry (or Feb) with strike prices and diagonals.

For what it's worth, the largest trade I see today is a purchase of the Feb 4.5/2 put spread for $1.55. That's obviously a bet to the downside.

The inarguable fact is that this news is huge for CLSN -- good or bad.  As always, I hope the company succeeds -- let's remember this isn't just a stock, it's a shot at curing cancer.

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Manitowoc (MTW) - Depressed Vol Nears Annual Low; But Why Right Now?

MTW is trading $14.82, up 2.2% with IV30™ up 2.0%.The LIVEVOL® Pro Summary is below.



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The Manitowoc Company, Inc. (MTW) is a multi-industry, capital goods manufacturer. MTW operates in two markets: Cranes and Related Products (Crane) and Foodservice Equipment (Foodservice).

This is a quick vol note -- I'm trying to note some lesser known names where vol has collapsed of late in a world / market where vol probably won't be collapsing.... I found MTW using a real-time custom scan. This one hunts for depressed vols.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile LTE 10
Average Option Volume GTE 1,200

The goal with this scan is to identify short-term implied vol (IV30™) that is depressed to its own annual history (at most in the 10th percentile). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), and I want a minimum vol level so I don't pick up any boring ETF’s (or whatever). The stock price requirement helps me identify names that have enough strike prices to trade or spread.

The MTW Charts Tab (one-year) is included (below). The top portion is the stock price the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side we can see that awesome rise in late Dec 2011 to mid-Feb of 2012, when the stock rose from a 52wk low of $8.30 to a 52 wk high of $16.97 in just a couple of months. What isn't pictured here is that the stock was ~$23 in May of 2011 and came all the way down to that $8.30 level before rebounding. So, in English, this stock can move by 50% / 100% increments in a matter of months.

I've included an IV30™ chart (one-year) below to better isolate the vol move.



We can see how elevated the implied was a year ago and how quickly it dropped while the stock was ripping up (essentially doubling in three months). We can also see the dramatic decline in the implied of late after earnings. The 52 wk range in IV30™ is [41.92%, 90.68%], putting the current level in the 1st percentile -- i.e. right above the annual low.

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



Across the top we can see the monthly vols are priced to 42.08%, 45.79% and 51.49%, respectively for Dec, Jan and Mar. The vol in general just feels low right now -- not only b/c of the obvious annual comp, but b/c of how the stock tends to move and b/c of the fiscal cliff and b/c of Europe and b/c.... know what I mean?... No?....

This is trade analysis, not a recommendation.