Wednesday, June 23, 2010

Lennar (LEN) - Huge Bet to Upside on Down Swinging Stock

LEN is trading $14.66, up 3.2$ today with IV30™ down 0.8%. The LIVEVOL™ Pro Summary is below.

Earnings are reported tomorrow.

The company has traded over 41,000 options on total daily average option volume of just 12,422. The action in the Aug 14 puts (sales), Aug 17 calls and Nov 18 calls (both purchases) has accounted for over 31,000 contracts. 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 (both Aug and Nov) are mostly opening (compare OI to trade size). The Aug 14 puts are ambiguous. I looked up the prior opening trades and I believe it to be short. The trades today should increase that OI.

Trade Stats (using averages)
Sell 10,000 Aug 14 puts @ $1.06
Buy 10,000 Aug 17 calls for $0.39
Buy 10,000 Nov 18 calls for $0.75
Debit = 10,000 * 100 *($0.39 + $0.75 - $1.06) = $80,000

On Nov Expo.
Break Even = $17.08

The 52 wk range is [$7.28 21.79].
The trades PnL ($7.28) = -$6,800,000 // on expo
The trades PnL ($21.79) = $8,500,000 // on expo

This is a huge bullish bet if unhedged. The avg daily stock volume is 7.3 million and only 5.2 million have traded thus far.

The PnL chart at Nov Expo is included (click to enlarge).

The Skew Tab snap (click to enlarge) illustrates the vols in the trade relative to each other, the other strikes and the other months.

The skew has maintained a fairly normal shape even with the trades buying upside and selling the downside.

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 how the stock has fallen apart of recent, with IV30™ trading over HV20™. This bet gets super long.

This is trade analysis, not a recommendation.

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