Tuesday, December 7, 2010

SLM - Calls Trade, Vol Rips, Skew Bends

SLM is trading $12.17, up 2.4% with IV30™ popping 10.7%. The LIVEVOL™ Pro Summary is below.

I found this stock using a custom scan I built searching for names where IV30™ is up at least 10% today. The scan details are below with a snapshot if you want to build it yourself in Livevol Pro.

Custom Scan Details
Stock Price >= 10
Average Option Volume >= 1,200
Days After Earnings >= 5 and <= 60
IV30™ Percent Change >= 10%
IV30™ >= 10

The goal here is find stocks more than $10, with a greater than 10% rise in IV30™ (short-term implied) that is not due to an earnings date, with enough option liquidity to trade.

The company has traded over 143,000 contracts today on daily average volume of just 7,488. Calls have traded on an 11:1 ratio to puts. The Stats Tab snap is included below.

The SLM 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).

IV30™: 40.08
HV20™: 26.00
IV180™: 44.31

We can see the IV30™ is in between HV180™ (long-term realized) and HV20™ (short-term realized). So, it's "fair" ish.

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

Notice the gaping vol difference between the ATM strikes in Dec and Jan. It's over 10 vol points with an IV30™ of just 40.  Let's look to the Options Tab.

Possible Trades to Analyze
1. A Dec/Jan 13/12.5 call spread paying $0.42 is an interesting play. The MaxLoss is $0.42. If the stock jumps abruptly passed $13 in Dec. expo, the MaxGain is just $0.08. The trade scalps about 10 vol points.

The added bonus... Earnings might be in the January cycle. Jan expo is 1-21-2011, with an earnings date projected in the ten day period 1-17-2011 to 1-27-2011. Selling elevated vol to purchase depressed vol and getting an earnings date is a great little trick.

2. Other spreads looking to sell elevated vol versus depressed vol either in the same month or in a calendar spread seem worth a look.

This is trade analysis, not a recommendation.

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