Monday, May 24, 2010

American Axle (AXL) - Skew Kink on Takeover Order Flow

AXL is trading 8.60, up 4.1% today. The LIVEVOL™ Pro Summary is below.

The company has traded over 9,000 options in the first hour on total daily average option volume of just 2,223. All but 259 contracts have been calls for 34:1 call:put ratio. The action has been mostly in the Jun 10 calls. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates the action in the Jun 10 calls is mostly opening (trade volume >> open interest). The Jun 9 calls are also opening. From what I can see, both of these lines are pre-dominantly purchases.

The Skew Tab snap (click to enlarge) illustrates a cool phenomenon.

I've highlighted the Jun 10 calls (circled). You can see the pronounced rise in vol from the 9 calls to the 10. Also, you can see how the Jul 10 calls (yellow) are also much higher vol than the Jul 9's now. This kink in the skew is from the order flow (i.e. the opening purchases). This feels takeover "rumorish."

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.

A few things to note:
1) The stock price has dropped hard recently from ~$12 to ~$7.5, or about 30% in less than a month. The entire auto parts industry has been smashed.

2) IV30™ (the red line in the bottom chart) is now actually above the historical vol (actual stock movement - the blue line).

3) The volume today is already the largest (or close to the largest) in the last six months. The green coloring indicates the ISE sentiment (predominant opening order customer call buying on the ISE).

This is trade analysis, not a recommendation.

Legal Stuff:


  1. Sometimes these setup nice risk/reward for iron condors on back months....

  2. Yeah, I find that when the skew gets this far out of line, I'm a better seller of that vol than a buyer. Obviously a spread around it feels a little safer.