Wednesday, September 22, 2010

ArvinMeritor (ARM) - Strangle Sale in Nov on Earnings Cycle

ARM is trading $14.93 with IV30™ up 0.9%. The LIVEVOL™ Pro Summary is below.

The company has traded over 12,000 options in the first three hours on total daily average option volume of just 1,964. The largest trade has been 5,000 Nov 14/15 strangle sales (10,000 contracts) @ $2.00. 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 and puts are mostly opening (compare OI to trade size). You can also see that Nov vol is elevated to Oct because of a potential earnings cycle (last cycle was 8-3-2010).

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

We can see Nov elevated to Oct. Other than that, a pretty normal skew, though the 17 strike does show a relatively large divergence.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV60™ - yellow vs HV60™ - blue vs HV180™ - pink).

The strangle sold 53.5 vol on average. I see that IV60™ is 53, while HV180™ is 56 and HV60™ is 57.6. This vol sales feels cheap to me. Even odder to me, ARM does have a bit of a history of moving on earnings news more than the straddle was pricing.

The 52 wk range for ARM is [$6.80, $17.22]. The strangle sale on Nov expo wins if the stock is in ($12, $17) which is a pretty wide range. Basically, I'm not in love with this trade, but selling options usually makes me feel warm and fuzzy.

This is trade analysis, not a recommendation.

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