Thursday, May 20, 2010

VeriSign (VRSN) - Taking a Stand on Short Vol

VRSN is trading 27.30 down 2.5% with IV30™ up 7.3%. The LIVEVOL™ Pro Summary is below.

I've included the VIX summary as well - note IV30™ in the VIX (i.e. the vol of the vol) is up 36.7 points or 28.5%.

The company has traded over 30,000 options in the first hour on total daily average option volume of just 5,689. The largest trade has been a vol sale (strangle) in Sep. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that both the puts and the calls are mostly opening (compare OI to trade size).

The strangle sale was @ $3.85 ($2.85 in the puts and $1.00 in the calls) for a total credit of 13,000 x 100 x $3.85 = $5,005,000. Max gain at expo. is if the stock is in between the two strikes [28,31]. Breakeven is $24.15 and $34.85.

The Skew Tab snap (click to enlarge) illustrates the vols that were sold in comparison to the rest of the chain.

More importantly however, you can see the vol (IV30™) in VRSN recently. The chart (below) looks almost identical in shape to a huge number of other stocks.

Note the elevated (spiking really) vol. This trade can be a winner well ahead of Sep expo. if vol dips in the summer months (particularly if it dips in August so the strangle wins to decay and vega).

This is a great example of not getting paralyzed by the market. It's going down, vol is spiking. The VIX is acting like a bio-tech in terms of vol (see above). If you're a vol seller, then be a seller. If you think vol is going higher, then bet that way. Note that as high as IV30™ is for the VIX, it's actual (realized) vol is in fact WAY higher (it's tripled in a month).

Naked strangles are more pro/institution type trades (like the one above) - but you can sell or buy vol in spreads to manage max loss outcomes. The same for deltas.

This is trade analysis, not a recommendation.

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