Friday, March 26, 2010

Reliant Energy (RRI) - Straddle Buyer (possible ratio)

RRI is trading 3.77 up 5%. The LIVEVOL™ Pro Summary is below.

The company has traded over 12,500 options in the first 2 hours on total daily average option volume of just 2,741. The Nov 3 calls were bought 10,000 times on a single print. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

Looking at the stock volume today relative to average (click to enlarge) you can see almost twice the stock volume in just 2 hours.

Looking at Time & Sales for the underlying (click to enlarge) there are three 740,000 prints for stock at (or around) the 10:32 Nov 3 Call purchase as well as a 200,000 print. They all look like sales. It looks to me like someone is turning those calls into straddles (possibly on a ratio).

The Options Tab (click to enlarge) illustrates that the calls are mostly opening (compare OI to trade size - though OI is large). The puts on that same line are almost all opening 1893 volume vs 25 OI. You can also see that the front three months have vol decreases while Nov has a vol increase. The final 2 months then show vol decreases again. The Nov buying is bidding up the vol.

The Skew Tab snap (click to enlarge) shows exactly the strike purchased relative to the rest of the month and all other months. It's now bid up pretty high.

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 recent drop in stock price and how the IV30™ and IV60™ haven't really risen in response.

If the trade is a straddle here are the calculations:
Buy Calls: 1.05
Buy Puts Synthetic: 1.05 - (3.67 - 3.00) = 0.38
Straddle = 1.05 + 0.38 = 1.43

So the straddle makes money above 4.43 and below 1.57. If the straddle is lopsided (ratio to upside), then it will lose money quicker on the downside but make money faster on the upside - i.e. lower breakeven on the upside).

One nice thing about cheap stocks is the limited downside risk - a stock can only go as low as $0.

This is trade analysis, not a recommendation.

Legal Stuff:

No comments:

Post a Comment