Friday, July 9, 2010

HJ Heinz (HNZ) - Summer Vol Seller on Earnings Projection

HNZ is trading $44.89, down small with IV30™ down 4.9%. The LIVEVOL™ Pro Summary is below.

The company has traded over 12,600 options on total daily average option volume of just 1,938. The largest trade accounted for 10,200 contracts; an Aug 44/45 strangle; the initiator sold @ $1.76 on a 10 delta (details below). 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 calls and puts are substantially opening (compare OI to trade size). Note that we project earnings right at the tail end of the Aug cycle, but since Sep vol is higher than Aug, my guess is earnings may actually fall in the Sep cycle.

Trade Stats
I got trade color from Mike Bristow (one of the best in the biz) at the Vtrader Group.
Sell 5,100 Aug 44 puts @ $0.76
Sell 5,100 Aug 45 calls @ $1.00
Buy 51,000 shares of HNZ @ $44.82

The PnL chart is included (click to enlarge).

At expiration:
Max Gain (stock = $45): $906,780
The range of profit for the strangle is ~ ($42.47, $46.97)

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

The skew looks pretty normal. July looks a little weird to the upside, but that's just a nickel bid in the 46 calls.

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 the stock has remained range bound for quite some time. The initiator bets this will continue into the usually slow July/August period. I especially like this bet if earnings are in fact just after the August cycle. The stock could muddle around until Sep if that's the case. This trade is also short ~$60,000/vol in vega and the IV30™ has just recently dipped below the HV20™.

This is trade analysis, not a recommendation.

Legal Stuff:


  1. Any color on the stock portion? Doesn't seem to change greeks much except changing delta closer to neutral. However, in my "regular" acct, adding stock raises margin about 60%.

  2. The trade was negative 10 delta so buying stock just made it delta neutral, that's all. This was a pure play vol sale; no delta intended.