Wednesday, December 1, 2010

Ciena (CIEN) - Time Spread

CIEN is trading $15.24, up 0.7% with IV30™ down 3.0%. The LIVEVOL™ Pro Summary is below.

The stock just came up on a real-time scan, not the custom one though. This one hunts for calendar spreads between the front two months.

The snapshot of the scan is included (below).

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).

We can see how the front month is elevated to the back, or in English, the red line is above the yellow line. I've highlighted the three ATM strikes.

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).

What I'm interested in here is the vol portion. Check out the IV30™ is relative to the short-term historical vol (HV20™) and the long-term historical vol (HV180™). Specifically:

IV30™: 40.18
HV20™: 31.38
HV180: 40.33

Selling 44 vol seems reasonable, purchasing 30 vol on the flip side also seems reasonable.

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

Potential Trades to Analyze
1. Sell the Dec 15 straddle @ $1.12 and purchase the Jan 15 straddle for $1.75 for a net debit of $0.63. This sells ~ 44 vol and purchases ~ 38 vol. I like the sale more than the purchase.

2. Sell the Dec 14/16 strangle @ $0.41 and purchase the Jan 14/16 strangle for $0.93 for a total debit of $0.52. This sells ~45 vol and purchases ~38 vol. I actually like this trade a bit more as it's cheaper, has more room for CIEN to move in Dec while still "winning" and sells some skew to the downside.

3. Do a Dec/Jan put spread or call spread. It looks like about 7 vol points in the difference.

4. And, for you risk lovers...
Sell the Dec 14 puts @ $0.16 (47 vol)
Sell the Dec 17 calls @ $0.08 (44 vol).
Purchase the Jan 16 calls for $0.52 (36.5 vol)
That's a net debit of $0.26 to own $1 of upside in CIEN for Dec, then just the call in Jan if Dec expires worthless, while being naked the downside for Dec.

This is trade analysis, not a recommendation.

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