Thursday, November 18, 2010

Amazon (AMZN) - Short-term Skew Peaks on Market Fear

AMZN is trading $163.90, up 3.5% with IV30™ down 5.6% as the market finally broke out of a nasty downward spiral. The LIVEVOL™ Pro Summary is below.


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The VIX jumped from ~18.25 to over 23 and now is down to ~19.10. The fear of a large down day (I mean, LARGE) has returned so the two day options need to reflect that. This means they have to have at least some value, and with expo approaching this pushes the vol up. Let's look to the AMZN Skew Chart (below).

I've highlighted the Nov (Monthly)/Nov 26 (Weekly) 155 strikes. We can see the vol difference is about 30 points, or, another way to say it, the Nov monthly expo 155 strikes are ~200% the IV30™.

Let's look to the Options Tab (below).

Possible Trades to Analyze
1. Buy the Nov 26 weekly 155 put for $0.58 and Sell the Nov Monthly 155 put @ $0.14. Pay $0.44 for the one week spread. Look to close tomorrow possibly.

2. Get crazy, do 1 x 2: So sell 2 of the Nov monthlies and buy 1 of the Nov 26 weeklies and pay $0.30.

3. Use the Dec monthlies. Get long those 155 puts and sell the Nov monthlies, then the Nov 26 weeklies, then the Dec 3 weeklies, Dec 10 weeklies, etc until Dec expo. Tricky...

This is trade analysis, not a recommendation.

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