Monday, September 13, 2010

Satyam (SAY) - Long Term Vol Seller Looks Attractive

SAY is trading $5.26, with IV30™ up 6.1%. The LIVEVOL™ Pro Summary is below.

The company has traded over 10,100 options in the first three hours on total daily average option volume of just 430. Essentially all the volume was an Apr'11 5 straddle sale 5,000x (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 the calls and puts are mostly opening (compare OI to trade size). Note also that Apr vol is 52 (ish). vs. Oct (63) and Jan'11 (56) which are higher.

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

I've highlighted the 5 strike. The Skew has a bend upward as the 7 strike calls are quoting at 53 vol.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV180™ - orange vs HV180™ - pink).

This is interesting. We can see the long term implied (53) is trading more than 17 points above the long term realized (36). This vol difference has been apparent for ~5 months, and is as wide as it's been right now. The stock price itself has risen of late, from ~$4.50 to $5.25 over the last three weeks.

Trade Stats
Sell 5,000 Apr'11 5 straddles @ $1.45
This is a 46.5 vol sale, so it's still ~10 points above the long term realized. I like selling this vol, but am also hesitant about $5 stocks in this new found merger happy world.

Selling this straddle smaller than 5,000x yields better prices (and vols). I see an Apr'11 5 straddle sale @ $1.55. Buying the Apr'11 6 calls for $0.55, yields a $1.00 credit, no upside risk, and naked downside < $4. The 52 wk price range for SAY is [$4.13, $6.84], so < $4 would be an annual low.

One other thing to consider is how much margin this might eat into for an extended period of time. A Jan'11 2.5 put purchase for $0.05 could help that problem out a touch.

This is trade analysis, not a recommendation.

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