Wednesday, August 11, 2010

Brookdale Senior Living (BKD) - Vol Hunter Bets On Convergence

BKD is trading $14.19, down 3.7% with IV30™ up 1.0%. The LIVEVOL™ Pro Summary is below.

The company has traded over 9,060 options in the first two hours on total daily average option volume of just 220 (not a typo). All but 60 contracts went up in a large Jan'11 trade. 3,000 Jan '11 15/20 call spreads bot funded with 3,000 Jan'11 15 puts sld. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that all the trades are mostly opening (compare OI to trade size).

Trade Stats
Buy 3,000 Jan'11 15 calls for $1.85
Sell 3,000 Jan'11 20 calls @ $0.35
Sell 3,000 Jan'11 12.5 puts @ $1.20
Total debit per spread is $0.30. The PnL chart at Jan'11 expo. is included (click to enlarge).

The 52 wk range for BKD is [$12.72,$22.21]. The PnL at those points is:
PnL($12.72) = -$90,000
PnL($22.21) = $1,410,000

We can see a rather clever put sale; just below the yearly low. Well, I guess it's clever unless the stock collapses; then it's not clever, it's a career ender.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV120™ - green vs HV120™ - purple). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

A very interesting phenomenon; look how much higher that IV is to the HV. In the 12 point range or 30% of the HV. Then look back a few months (same chart) at how well the two tracked. This is a bet on convergence. This trade sells 2 options for every one it buys and assumes (hopes) nothing will propel the stock below it's 52 wk. low. On the vol side, I love this trade. The deltas, I have no real opinion. This could be an interesting one to look at given the vol diffs and the new found liquidity in Jan '11 options.

This is trade analysis, not a recommendation.

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