Thursday, October 28, 2010

EchoStar (DISH) - Calls Trade, Vol Pops, Term Structure Diverges into Earnings

DISH is trading $19.58, up 0.8% with IV30™ up 8.5% ahead of earnings on 11-5-2010. The LIVEVOL™ Pro Summary is below.


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The company has traded over 14,000 options in the first few hours on total daily average option volume of just 3,433. Call have traded on a 13:1 ratio to puts. The Nov 21 calls have traded nearly 6,000x. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Nov 21 calls are mostly opening (compare OI to trade size). We can also see that both Nov and Dec are up nearly 4 vol points, so both months are reacting.

The Skew Tab snap (below) illustrates the vols by strike by month.

A few things jump out at me here:
1. The front month (red) is well above the yellow. This is normal going into earnings, but we're still more than a week away, so it feels a bit early for that divergence if it's just based on earnings.
2. The upside skew in Nov (red) is bid - i.e. it bends upward. The skew in Dec (yellow) is sort of "straight-ish." Jan'11 shows more of a normal shape, though it's still kinda flat.
3. Check out the vol difference between the Nov and Jan'11 OTMs. Nov is nearly twice as expensive in terms of vol... Hmm...

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Two things I see here. First, the vol difference between IV30™ and HV20™ and HV180™. Second, look how much DISH moved on the last earnings cycle. Within a week(ish) it went from ~$21 down to ~$17.50. The realized vol shot way past the implied. I am guessing the rather pricey and early vol move now is in part do to that last cycle.

In terms of trades. I like spreading the months in the calls, but that last earnings cycle looms large. Feels like the stock could go up or down size and kill that calendar. Really, the front month ATM straddle for <= $1.80 kinda feels cheap... No?... Still, I can't get myself to think of it as a purchase.

This is trade analysis, not a recommendation.

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