Tuesday, August 24, 2010

Cemex (CX) - Vol Buy, Delta Bet on Dipping Stock

CX is trading $7.79, down 4.2% with IV30™ jumping up 13.9%. The LIVEVOL™ Pro Summary is below.

CX is a global cement manufacturer with operations in North America, Europe, South America, Central America, the Caribbean, Africa, the Middle East and Asia.

The company has traded over 18,000 options in the first two hours on total daily average option volume of just 3,896. The largest trade was 5,000 Sep 7/8 risk reversals (buy put/sell call) no stock - net credit of $0.03. Darren Story from Student Options on the floor gave me this color. 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 calls are opening (compare OI to trade size). The put OI is long as best I can tell; meaning this will ~double the OI. The initial interest bought those puts for ~$0.10 a few weeks ago.

Note the monthly vols at the top of the tab. Sep, Oct, Jan '11 and Apr '11 have all converged to 50. Each month is also up substantially today, with the front experiencing the largest rise. This trade gets long the elevated vol with a decided delta bet.

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

We can see above that while the trade is premium neutral (or even small positive), it is long vol (buying the skew). Specifically it buys 60 vol, sells 48.

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 vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

Note the recent stock drop and coinciding vol pop (highlighted in the chart). The IV30™ (50) is 18 points higher than the HV20™ (32) and 7 points higher than the HV180™ (43). Any way you slice it, this is a purchase of elevated vol and a short delta bet in a dipping stock.

This is trade analysis, not a recommendation.

Legal Stuff:


  1. Why would you buy high vol and sell low vol? Isn't this just the opposite of your advice?

  2. Two things:

    1) I didn't do this trade

    2) The goal is buy vol that rises and sell vol the drops. In that vein, any bet on initiation could be a winner, regardless of where vol has been. Usually, I look to sell elevated vol and buy low vol in the same month, or at least the same underlying. There is no magic bullet. In this case, this trader believes vol will rise further and CX will drop further 9i.e. beyond what is has already done).