Wednesday, September 22, 2010

LM Ericsson (ERIC) - Straddle Seller

ERIC is trading $10.89. The LIVEVOL™ Pro Summary is below.

I got color on this from Mike Bristow, Vtrader Group head broker.

The company has traded over 10,000 options on total daily average option volume of just 1,168. The largest trade was 5,000 Jan'11 10 straddle sales (10,000 contracts). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that both sides are at least partially opening (compare OI to trade size). The existing interest is ambiguous, but I think it's actually long. We'll see tomorrow if OI goes up or down.

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

The skew hasn't shifted due to the order flow which makes me feel a touch more confident that the existing interest was long.

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 vs HV180™ - pink).

The HV120™ is 43 while the IV120™ is 38. The straddle sold exactly 38 vol to my calculations. I definitely don't feel like this is expensive vol. Not sure what to say about the trade, I'm not in love with it maybe is the least eloquent yet descriptive way to give my opinion.

Generally I'm seeing a fair amount of vol selling in the Jan'11 options, feels like people are buying this rally and if that's the case all of the vols will look "low" relative to historical, but it doesn't mean they aren't sales.

The 52 wk range for ERIC is [$8.94, $12.39]. The straddle sale @ $1.95 requires that the stock be in ($8.05, $11.95) at Jan'11 expo.

This is trade analysis, not a recommendation.

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