Thursday, November 18, 2010

Energy XXI (EXXI) - Re-visiting Elevated Vol

EXXI is trading $24.10, up 4.6% with IV30™ also up 3.1%. The LIVEVOL™ Pro Summary is below.


For a limited time we are offering a FREE real-time trial to Livevol Pro™ for non-professional traders. You can get your trial by following the directions here: Click for Free Trial Offer

I posted a blog on this stock on 10-20-2010 based on it's elevated vol. You can read that post here:
Energy XXI (EXXI) - Elevated Vol Starts to Drop

The trades we analyzed surrounded selling strangles. All of them have ended lookin' pretty sweet and today this stock showed up again on the same elevated vol scan.

Custom Scan Details
Stock Price >= $7 and <= $70
IV30™ - HV20™ >= 10
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >=10 and <=60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching. Alternatively, I've included this scan in the "Trading Opportunities" folder. You can see that result below.

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

We can see:
IV30™: 68.40
HV20™: 40.32
HV180™: 51.45

So, IV30™ is again elevated relative to the short term and long term realized movement of the stock.

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

Possible Trades to Analyze
1. For naked vol sellers, selling the Dec 22.5/25 or 22.5/27.5 strangles trades ~68 vol. The Dec 22.5/25 strangle @ $2.50 requires EXXI be in the range ($20, $27.5) if held to Dec expo. to be profitable.

The Dec 22.5/27.5 strangle @ $1.80 requires EXXI to be in the range ($20.70 ,$29.30). So the trade off between these two is more upside room but collecting less premium and losing a touch of downside room for the 22.5/27.5 strangle.

Both are naked short options.

2. Sell the Dec 22.5/27.5 strangle @ $1.80 but purchase the Dec 20/30 strangle for $0.85 for protection. This receives $0.95 (MaxGain) and locks in a MaxLoss of $1.55. The PnL Chart on Dec expo. for this trade is included below.

3. Sell the Dec 22.5/25 strangle @ $2.50 and purchase the Dec 20/27.5 strangle for $1.25 for protection. This yields a 1:1 MaxGain:Max loss rather than the 0.61 for trade #2, but leaves less upside room. The PnL chart for this trade is also included below.

Another little bonus here, this would be selling Dec vol and Dec is a month which can sort of drift off into nothingness as holidays approach... Or not...

This is trade analysis, not a recommendation.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

Legal Stuff:

No comments:

Post a Comment