Tuesday, August 3, 2010

LDK Solar (LDK) - Sep Bet Ahead of Earnings

LDK is trading $6.91 with IV30™ up 8.2%. The LIVEVOL™ Pro Summary is below.

The company has traded over 14,000 options on total daily average option volume of just 4,102. 12,000 of those contracts have traded in Sep; it looks like a Sep 5/7 strangle 2x1 purchase (buy 1 call x buy 2 puts). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates the action. The OCC failed to deliver their OI data to the markets today so we can't extrapolate too much from previous positions. The Sep 5 puts had ~9,000 OI as of yesterday, and there was some put buying in other lines, though not in the Sep 5 kind. The Sep 7 calls had just 2,000 (ish) OI yesterday, so it feels like today's trades are opening. LDK has earnings coming up in a week AMC.

The 52 wk range for LDK is [$4.97,$12.15]. I sort of prefer this trade if the puts were sales. Selling two puts gets you ~$0.40 to cover each ~$0.65 call. You could buy the Sep 3 or 4 puts to cover if the risk was too great.

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

The skew looks pretty normal, with ATM Aug above Sep due to earnings.

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.

We can see the stock peaked into the mid $8 range in April, then dropped pretty hard and has risen recently from ~$5 to almost $7. I don't see any great trades in August, so the Sep order flow is about as good as it gets in my opinion. If anything, maybe the downside puts are too cheap in Aug. If you like to buy the Sep 7 calls, and sell the Sep 5 puts to fund them 1x2, you could also buy Aug 5 puts on the hope to cover downside from an earnings move.

Please keep in mind, this is a small cap solar company, so risk is sort of in the air.

This is trade analysis, not a recommendation.

Legal Stuff:

No comments:

Post a Comment