Wednesday, December 23, 2009

Old Dominion (ODFL) - Strangle Buyer

ODFL is a $1.3 billion motor transporter. You can see the LIVEVOL™ Pro Summary below.

The company averages 233 option contracts a day - today over 4,300 have traded. The Company Tab snapshot below (click the image to enlarge it) illustrates not just the increased volume, but that the ratio of calls to puts is 1:1. You can also see that the Net Premium is green (positive) - indicating purchases of options (vol).

The snap shot of the Options Tab below (click to enlarge) shows that essentially all of the volume has been the 2000 of the Jan 30/35 strangle (purchases). The OI demonstrates that the calls are all opening and the puts are at the very least, somewhat opening (compare OI to trade volume).

Taking a look at the Charts Tab (below - click to enlarge) starts to unveil the possible bet. The stock rose sharply a few days ago (from ~$29 to $33). This big move increased the HV10™ substantially (white line below). The IV30™ has increased slightly, but has not reached the vol level of the underlying (very short time).

The strangle payout looks like this (click image to enlarge):

Ultimately this is a 2000 x 100 x ($0.75 + $0.90) = $330,000 bet that the tsock trades above 36.65 or below 28.35 by Jan. expo. Alternatively, it is longvtega. Specifically [2,000($0.024) + 2,000($0.031)]*100 = $11,000 of vega.

This means in the near term, this bet wins $11,000 for each vol point increase (alternatively it loses $11,000 for each vol point decrease). With HV10™ at 58 and IV30™ at 50 - an immediate 8 point vol increase would yield ~$90,000 (note that vega is not constant nor linear - it is a function (not a number)). This is strictly an approximation, it is by no means highly accurate.

Either way, someone has laid down a delta neutral bet that vol and stock moves in ODFL in the relative near term.

Legal Stuff:

No comments:

Post a Comment