Monday, January 11, 2010

Take-Two (TTWO) - Call Buyer on Big Reverse Skew

TTWO is trading 10.76. The LIVEVOL™ Pro Summary is below.

The company has traded over 12,000 options today in the first hour on total daily average option volume of 3,535. Further, 11,888 have been calls for a 40:1 call:put ratio. The Company Tab snapshot is below (click the image to enlarge).

The Jan 12.5 and Feb 12.5 calls are trading the vast majority of the volume. The day's biggest trades and Options Tab snapshots are included below (click either image to enlarge). Note the OI in the Feb calls is substantially smaller than the volume - those are opening.

The Jan 12.5 call purchases are going to increase OI. The Level II pop-up below demonstrates that an increase in opening positions on 12/21. The Time & Sales Tab snapshot on that day for the Jan 12.5 calls demonstrates that these were purchases. Since the trades today are also purchases, this is a double down on the original bet. You can click either image below to enlarge.

An interesting trade could be to sell the Jan 12.5 calls to fund a Feb 12.5 purchase. If the stock stays below 12.5 through expo you have funded the calls of interest one month further. Of course, a takeover in the next few days could make that a 100% loser. Notice also the IV on the Options Tab snap above for Jan.

With the stock 10.76 the 10 level puts ($0.76 out of the money) are 0.05 x 0.15. The Jan 12.5 calls ($1.74 out of the money) are 0.15 x 0.20. So the calls are substantially further out of the money and still more expensive. That translates into a 150 IV in the calls and 79 in the puts. That is the complete opposite you would expect to see in vol skew. For more details you can read the vol skew blog posted a few days ago. You can go there by clicking HERE. Ultimately this points to much greater demand for upside calls.

NOTE: This is not trading advice, this is trade analysis. Please read the legal disclaimer below - we do not provide trading advice.

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