Friday, April 30, 2010

Steve Madden (SHOO) - Skew Scalper

SHOO is trading 57.84 up $2.21 with IV30™ up 10% and earnings next week (Tuesday BMO). The LIVEVOL™ Pro Summary is below.

The company has traded over 4,600 options today on total daily average option volume of just 330 (or 14x daily average) . The largest trade was a May 55/65 risk reversal (sell calls / buy puts) paying $ 0.80. 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 calls and puts are opening - volume is well above the open interest.

The Skew tab snap shows a nice little trade - selling upside calls for the same vol as the downside puts - something you don't usually get to do. I've highlighted the relevant strikes (click to enlarge).

This is actually a fairly common trade - a stock runs up, vol goes up with it into earnings making puts "cheap" relative to calls (in this case when call iv = put iv on the skew chart - that's "cheap"). To read why OTM puts are usually more expensive then OTM calls (i.e. why skew exists) you can go Click Here.

If the trader is long the stock they have bought downside protection for "cheap" while selling covered calls for "expensive." Not bad and possibly something to think about over the weekend.

This is trade analysis, not a recommendation.

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