Monday, July 19, 2010

Big Lots (BIG) - Jan Put Spreader

BIG closed at $33.39 on Friday, down 3.8%. The LIVEVOL™ Pro Summary is below.

The company traded over 17,000 options on total daily average option volume of just 1,009. All but 353 contracts were puts. Essentially all of the action was 8,469 Jan '11 25/27.5 put spread purchases. 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 opening (compare OI to trade size).

Trade Stats
Buy 8,69 Jan 27.5 puts for ~$1.40
Sell 8,69 Jan 25 puts @ ~$0.80

This yields a max gain ($1.90) to max loss ($0.60) ratio of ~3.2/1. If held to expiration, the trade requires BIG to go below $26.90.

The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.

The Jan '11 skew looks normal; it's actually a pretty shape. The order flow didn't force a kink. However, you can see how the Aug 27.5 puts have exploded. Very cool.

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 that the HV20™ is well above the IV30™. The IV180™ (38) however is above the HV180™ (35). These longer term vols are more relevant to the Jan '11 trade.

If you like the put spread, a sale of the Aug 27.5 puts might aide in funding it.

This is trade analysis, not a recommendation.

Legal Stuff:

No comments:

Post a Comment