Monday, November 8, 2010

Becton Dickinson (BDX) - Delta and Vol Bet After Earnings Pop

BDX closed at $77.54 on Friday, down 0.9%. The LIVEVOL™ Pro Summary is below.


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BDX is a medical technology company engaged principally in the development, manufacture and sale of a range of medical supplies, devices, instrument systems and reagents used by healthcare institutions, life science researchers, clinical laboratories, the pharmaceutical industry and the general public.

The company traded over 15,800 options on total daily average option volume of just 894. 15,000 contracts went up in one trade. It looks like a sale of Nov 75 puts and Dec 70 puts with a purchase of Dec 80 calls 5,000x each. In total, the trade paid $0.35 5,000x. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls and both puts are mostly opening (compare OI to trade size). When looking down the entire option chain, I don't see any OI larger than 2,058 so all three sides of this trade are very large. Note the company just had earnings and gapped up ~$2.50.

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).

We can see the stock has steadily climbed over the last few months, with a pop after earnings a few days ago. On the vol side (bottom), we can see the IV30™ is still elevated to both HV20™ (the short-term realized) and HV180™ (the long-term realized). The big trade on Friday sold 19 vol and 23 vol and bought 17 vol, while getting long deltas.

The stock traded 1.8 million shares on Friday, which is almost twice the daily average - it's possible (if not likely) that these trades went up with stock.

Possible Trades to Analyze
1. In general, I like the sale of the elevated vol. HV20™ is 15.75, and HV180™ is 16.65, so a 23 vol sale looks reasonable in Dec, especially with leaving more than $7.50 to the downside of room (Dec 70 puts). The Nov 75 puts look like a reasonable sale @19 vol as well. One note, stocks that pop on earnings can tend to flutter back down a bit - might want to wait for the stock to dip for a better sale in the puts.

2. On the call side, a Nov 80/Dec 80 call spread (sell Nov/ buy Dec) for $0.50 or less also looks like a reasonable delta play if you're bullish.

This is trade analysis, not a recommendation.

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