Thursday, June 3, 2010

Kroger (KR) - How Pros Vol Scalp on Earnings Date News

KR is trading 20.00 with IV30™ up 7.6%. The LIVEVOL™ Pro Summary is below.

KR announced this morning that earnings will be released on June 17th. The news came out at 10:00 EST, the largest trades were at 10:04 EST. Why does that matter? Because it's one day before expo in the June cycle. Let's see how the vol has changed dramatically on this news and how pro traders are scalping vol.

The company has traded over 14,000 options in the first two hours on total daily average option volume of just 3,990. Essentially all of the volume has been option purchases in the front month. 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 volume is mostly opening on all lines (trade volume >> open interest). Note also the front month vol is up 10.3 points while July is down. You can see the volume has mostly been in the Jun 20 straddle (ATM).

For the last two earnings cycles the front month vol as 12 and 15 points higher than the back month on the day before earnings. As of this morning, the front month (June) was actually 4 points lower than July. There was uncertainty over the earnings date - most people were projecting June 20 (ish) - i.e. in the July cycle.

The Skew Tab snap (click to enlarge) for the last two days illustrates this point perfectly.

If those pictures ain't worth 1,000 words (or would it be 2,000 words?) then I don't know what is. You can see the massive swing in relative vols. July is essentially unchanged, it's June that ripped.

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.

You can see two cycles ago KR gapped huge on earnings and vol was a super buy. Last time, vol was a sale. The pro trades today aren't about a bet on KR earnings. That's too risky. The trades today were a clean vol scalp. This is how pros make money. The news came out at 10:00 EST, the largest trades were at 10:04 EST.

These are the little things pros do to make money. There's no magic, just preparation.

This is trade analysis, not a recommendation.

Legal Stuff:


  1. Bery interesting article. Question about the Pro's scalping vol. Does this mean they just purchased the Jun straddles? Is this kind of trade a same day in and out affair or do they tend to hold it ?


  2. Looksl ike straddle purchases yes. My best guess is they sell it out in the next few days or short the back and hold 'til the day before earnings then close hoping for a greater divergence.