Tuesday, May 25, 2010

CenturyTel (CTL) - Huge Put Purchase on June Upside Skew Collapse (Why Skew Matters)

CTL is trading 33.24 with IV30™ up 14.8%. The LIVEVOL™ Pro Summary is below.

The company has traded over 10,000 puts in the first hour on total daily average put volume of just 501. The call:put ratio is 1:165 with essentially all of the volume in the Jul 30 puts. 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). Note also the large OI in the Jun 35 calls (though only a one lot has traded today on that line).

The Jun 35 calls OI jumped from 181 to 9,271 on Apr 23 (so the trade was Apr 22). The largest trades for that day are included (click to enlarge).

You can see there were huge sales of both the Jun 35 calls @ ~$0.85 and the May 35 calls @ $0.75. The May calls have expired worthless, so they were a nice winner. Note the purchase price of the puts today (Jun 30 puts) for $0.85. If this is the same trader (feels like it is) - then s/he paid for his puts with the premium collected in the calls a month ago.

The Skew Tab snap (click to enlarge) illustrates a couple of things.

1) You can see the vol in the Jul 30 puts relative to the rest of the chain.
2) Even more cool, check out the vol in the Jun 35 calls.

It looks to me like that absolute collapse in Jun 35 vol (there is short interest there) has enabled the trader to go ahead and use that premium for the Jul puts.

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.

Note the IV30™ relative to the actual move (HV20™). The options market is looking for a larger move than the stock has had recently. But oddly enough, almost no probability that an upside move occurs in Jun. Kinda cool.

This is trade analysis, not a recommendation.

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