Wednesday, November 17, 2010

Regis (RGS) - Takeover Ride, Stock Gaps and Huge Skews

RGS is trading $18.04, up small with IV30™ up 3.9%. The LIVEVOL™ Pro Summary is below.


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This one has a good story. Short and sweet, they were lookin' for bidders to takeover the company and the stock popped on that news. Two days ago the New York Post leaked a story that claimed the bids they got were in the teens (substantially lower than they anticipated). The stock gapped back down a couple of bucks. You can read about it by clicking HERE.

And today...

The company has traded over 16,000 options on total daily average option volume of just 970. Over 15,900 calls have traded yielding a 43:1 call:put ratio. Over 12,000 Dec 20 calls have traded, substantially purchases as I see it. So, the order flow is buying calls, though the news seems to be "bad." The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls in Dec have a large OI. I see that interest as long, and opened in Oct, so this is a double down.

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

We can see two things. First, Dec is substantially elevated to Mar. Second, the upside has turned up from this order flow. I haven't included Nov because it ruins the scale, but that upside is hugely bid. The Nov 20 calls are trading at 133 vol, the Nov 22.5 calls are trading at 194 vol (if done @ $0.10).

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 pop in early Aug and the recent drop as of two days ago. The IV30™ has traded above the historicals since early Sep and is now rising to a 52 wk high today.

Possible Trades to Analyze
1. Nov/Dec 20 call spread. Buy Dec for $0.60 and sell Nov @ $0.15, net debit is $0.45. Believe it or not, that's selling 133 vol in Nov.

2. Nov/Dec 22.5 call spread. If that can be done for $0.10, that looks like a nice cheap bet. $0.15 is ok, above that is probably too pricey.

3. A Nov/Dec 17.5 put spread, paying $0.70 would be ok. If the stock stays above 17.5 into expo, you can close that out or buy stock 1:1 to options and turn those puts into calls. Then a Dec 20 call sale to spread it off might work.

4. With all of those trades, selling the Dec 15 puts @ $0.20 (or better) makes everything cheaper but adds a new dimension of downside risk.

This is trade analysis, not a recommendation.

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