Tuesday, March 16, 2010

Carnival (CCL) - Options Trade Into Earnings

CCL is trading 36.94. Note earnings are due out near the end of March (April Options cycle). The LIVEVOL™ Pro Summary is below.

The company has traded over 21,000 options in the first hour on total daily average option volume of just 5,335. All but 71 contracts have been puts. The largest trade has been a Apr 37/35 put spread sold (sell 37 puts) on a ratio slightly more than 1:1 (more sales). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that the puts are mostly opening (compare OI to trade size). You can also see that Apr vol is about the same as the other months even though earnings are in that cycle (a vol event).

Selling the put spread (if done without stock) is a bullish position. When done in a ratio of more high strike puts to low strike, it's more bullish. The Skew Tab snapshot (click to enlarge) illustrates the pronounced vol smirk - selling more options than buying makes sense ceteris paribus. Also, if stock moves up on earnings, vol should (could) come down on both factors.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

You can see a recent stock run up (though it may be turning) on the top. On the bottom you can see the IV30™ (red line) moving past the HV20™ (blue line).

Ultimately, from a purely technical standpoint, selling more options and getting long makes sense given the chart and skew. I do however think it's possible that vol rises even more pre-earnings.

This is trade analysis, not a recommendation.

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