Wednesday, July 7, 2010

Novartis (NVS) - Oct Bearish Trades Dominating Option Order Flow

NVS is trading $49.19, up 1.1% with IV30™ down 2.9%. The LIVEVOL™ Pro Summary is below.

The company has traded 22,299 options on total daily average option volume of just 3,314. 22,000 of the contracts went up in a single trade; an Oct 45/55 risk reversal (buy puts/sell calls). 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 and calls have massive OI already.

It turns out on 6-24-2010 (i.e. a few weeks ago) the same trade went up 9,190 times, and then again on 6-30-2010 for size. The historical trades snapshot from 6-24 is included (click to enlarge).

The 11,000 today are tripling down on the same line. Today the trade cost $0.80; it cost $0.90 on 6-24 and ~ $0.87 on 6-30. The entire OI plus today's trades PnL at Oct expo is included (click to enlarge) using an average price of $0.85.

The 52 wk range for the stock is [38.97, 56.42]. The PnL for this position at those levels (assuming no stock hedge) is:
P(38.97) = $15,540,000
P(56.42) = -$6,810,000
Umm, that's size.

The stock averages 3.5 million shares a day, and today only 1.75 have traded; so it's certainly not obvious if stock traded on those riskies.

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

The skew looks pretty normal. Jan '11 looks a bit weird with the upward bend but that's just a nickel bid on the 70 calls.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV90™ - red vs HV90™ - blue). The yellow shaded area at the very bottom is the IV90™ vs. the HV90™ vol difference.

We can see the IV90™ is always above the HV90™ (or has been for 6 months). Long term vol looks like a sale according to that, but of course, the past doesn't predict the future. For what it's worth, the risk reversal does get long a little vol just based on skew. The 30,000 riskies create a vega position of $27,000/vol using today's values (vega).

The stock dipped pretty hard then bounced off a low and has been in a very small range recently.

This is trade analysis, not a recommendation.

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