Thursday, June 10, 2010

** UPDATE: MHP, MCO - Rating Agencies in Trouble

MHP is trading 28.73, up 2.9% with IV30™ down 10.5%. The LIVEVOL™ Pro Summary is below.

This is a third piece in a set. The most recent was:
Rating Agencies in Trouble

My basic feeling is that what they've done is abominable (yes, like the snowman). You can read about some of the news etc. in the prior posts, this is a trade update for today's order flow.

The company has traded over 5,500 options on total daily average option volume of just 1,307. The largest trade, accounting for essentially all of the volume, was an Aug 27.5/35 strangle purchase (that's in an earnings 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 puts are all opening (there is no open interest before this) and the calls are mostly opening (trade size >> open interest).

Note that the August cycle has earnings in it. This is a bet on movement in the month of earnings.

The Skew Tab snap (click to enlarge) illustrates the vols for the two options.

Pretty normal lookin' skew. 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.

We can see that the stock has formed a "saucer" like shape since the decline. The IV30™ is still well above the realized vol (red line is above the blue line on the bottom chart) indicating an "expectation" of volatility above the realized vol in the past.

I think there will be a price to pay for these guys (geez, have I ever said that before?). I don't like rooting against companies but... well, I make an exception for MHP, MCO and an "un-related" third company (I would name the third company on my hit list but I'm afraid they'll take my first born - and I don't have any kids).

An astute reader pointed out that MCO is more of a pure play if you want to bet on the outcome for these rating agencies (whichever direction you think they'll go). I've included the summary and chart for MCO as well (click either to enlarge).

The chart is similar, the IV30&38482 is above the HV20™ like MHP, but even more so. MCO is up similar to MHP today with IV30™ down a fair amount.

This is trade analysis, not a recommendation.

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