Wednesday, September 1, 2010

Rowan (RDC) - Stock and Vol Pop on Economic News; Skew Converges Too Tight

RDC is trading $27.96, up 8.8% today with IV30™ up as well 6.2%. The LIVEVOL™ Pro Summary is below.

RDC is a provider of international and domestic contract drilling services. The stock popped today on the U.S. manufacturing data for August.

The company has traded over 13,000 options on total daily average option volume of just 2,024. The largest trades have been Sep 27 put sales, Sep 28 call purchases, Oct 26 put purchases and Oct 27.5, 29 call purchases. Note the Net Premium and Net Deltas; in totality, the order flow is buying premium and buying deltas. 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 of the those active lines are mostly opening (compare OI to trade size).

Note also the vol in Sep and Oct is up while Jan'11 is unched and Apr'11, Jan'12 are down.

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

It's interesting to see how the vols across the first three months have now converged basically on top of each other. The skew shapes are also similar. I actually feel like the Oct and Sep skews aren't steep enough relative to Jan'11.

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 pop today on the news. The IV30™ is above the HV20™ and has been for a couple months now. The skew chart from three months ago is included below (click to enlarge).

We can see that RDC does have a somewhat muted skew, but it certainly normally has some divergence from the skews.

Possible Trades to Analyze
It could be interesting to sell Jan'11 OTM puts while buying Oct OTM puts. In mid Oct, close it down, and hope for a vol divergence (i.e. Oct OTM vol goes higher than Jan vol). Another opportunity could be to hope this continues until Sep expo, and do a Nov/Oct or Jan/Nov spread.

Yes, this is really happening. I want to look at buying skew for once... man it's slow...

This is trade analysis, not a recommendation.

Legal Stuff:


  1. What spread would you think is appropriate for this trade

  2. Generally speaking it will interesting to watch the price evolution of the 25 puts (or 24, or 26).

  3. That wasn't advice! Just to be clear... Analysis only.