Wednesday, March 17, 2010

GAP (GPS) - Winner Closes then Rolls to Better Vol On Stock Climb

GPS is trading 23.04. The LIVEVOL™ Pro Summary is below.

If the trades below are the same person, this is one of the best trades I've seen in a while.

The company has traded nearly 37,000 options in the first hour on total daily average option volume of just 4,332. All but 300 contracts have been calls. The largest trade has been a three legged Apr 24/ Jun 14/ Jun 24 call spread. 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 Apr 24 calls are opening (compare OI to trade size). The Jun 14 and 24 calls are sales on OI of purchases (closing). Note that even though these are closing trades we can't tell if it's the same firm/trader closing the initial position. The Apr 24 calls are opening purchases.

The Skew Tab snapshot is included (click to enlarge). GPS demonstrates a pretty normal skew shape. For an understanding of what "normal" skew is and why it happens you can CLICK HERE.

Notice that the opening purchase is the lower vol.

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 IV60™ vs. the HV60™ vol difference.

You can see the stock has gone up strongly over the last month. That means the Jun 14/24 call stupid (long/long) that was purchased originally was a big winner. Now the trade is closed for that win and opening an Apr 24 call purchase of relatively lower vol (see skew above).

This is trade analysis, not a recommendation.

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