Monday, November 15, 2010

Randgold (GOLD) - Time Spread with Skew Scalping

GOLD is trading $98.29, down small with IV30™ up 2.8%. The LIVEVOL™ Pro Summary is below.


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The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. Of course, this scan is a bit less valuable for the week of expo, so I am also searching for a skew scalp... More on that later.

Custom Scan Details
Stock Price >= $5
Sigma1 - Sigma2 >= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 and <=70
Sigma1, Sigma2 >= 1

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol Pro™.

It's also available on the Scanner Tab, in the "Trading Opportunities" folder. I've included that snap as well (below).

The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. 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 front month vol simply because earnings are approaching.

Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line). But, there's more...

We can see how the front month is elevated to the back (which is normal this close to expo). But the part that makes this trade something worth analyzing is the skew difference to the upside. Look at the Nov and Dec 100 and 105 calls.

Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Look how the IV30™ has stayed elevated, even after earnings. The option market reflects the possibility of large moves.

Finally, let's look to the Options Tab (below).

Potential Trades to Analyze
1. Do the Nov/Dec 100 call spread (sell Nov/buy Dec) and pay $2.50.

2. Do the Nov/Dec 105 call spread (sell Nov/buy Dec) and pay $1.65.

3. Get a little crazy; Nov/Dec 105/100 2x1. Or, in English, Sell 2 Nov 105 calls @ 0.25, but 1 Dec 100 call for $3.60, or a total debit of $3.10. Note this is naked upside.

This is trade analysis, not a recommendation.

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1 comment:

  1. This looks to be very promising, and a great tool to help alternative payment providers figure out what to do next with their trades. Good job analyzing the possibilities and outcomes.