Wednesday, January 19, 2011

Cabot Oil & Gas (COG) - Naked Bullish Bet on Earnings

COG is trading $38.69, down 1.4% with IV30™ down 1.3%. The LIVEVOL® Pro Summary is below.


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COG is an independent oil and gas company engaged in the development, exploitation and exploration of oil and gas properties located in North America.

The company has traded 8,986 contracts in three hours on total daily average option volume of just 1,061. The action is in the Apr options - a 33/41 risk reversal (sell puts/buy calls). The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls and puts are mostly opening (compare OI to trade size). When looking down the entire option chain for COG, I don't see any OI larger than 2,125, so both sides of this trade are very large.

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

This is my favorite part of option trading - when the skew reacts on specific strikes in an effort to find equilibrium in price discovery. The Apr 33 strike vol is down (on sales) and the Apr 41 strikes is up (on purchases). The vol difference isn't really enough to trade on given the width of the markets, but it's always an interesting phenomenon to me.

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 dipped on the last earnings cycle, but after a small trough, the price has exploded from $28.68 (ish) to $38.69 right now, or ~35% in the last quarter. This order flow is a bet on that upward trend continuing.

On the vol side, we can see the short-term historical vol (HV20™) has plummeted as the short-term implied vol (IV30™) has remained steady though still below the long-term historical realized trend (HV180™).

In terms of trading, I don't see any obvious vol scalps - if you think this order flow is betting on earnings (which are after the Feb cycle), then look for call spreads (sell some put spreads). I dunno about naked risk reversals given how this stock collapsed on the last earnings release.

This is trade analysis, not a recommendation.

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