Wednesday, January 5, 2011

CBS (CBS) - Earnings Vol Seller

CBS closed yesterday at $19.42, up 0.7% with IV30™ down 3.4%. The LIVEVOL™ Pro Summary is below.


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The company traded 13,423 contracts on total daily average option volume of just 3,624. The action was on the Feb 20 line - a straddle seller 4,000x. 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). The earnings are confirmed (from what I see) for 2-16-2011, which is in the Feb cycle. Or, in English, someone was selling ~ 31 earnings vol.

Let's take a look at some earnings stats for the last few cycles for CBS.

First thing to notice outside of this table, the stock is up size from two years ago. CBS was a ~$5 stock and is now nearly $20... Nice job CBS.

Ok, onto the options:
It looks like in the last 4/5 earnings cycles, the ATM straddle was a sale. BUT, going out to the sixth cycle, the stock gapped up huge making that short straddle a big loser. In general vol looks kinda fairish on earnings. The average ATM vol on the day of earnings in the front month for the last four cycles was ~59 vol. We're way too early to see what the vol will be on 2-15-2011.

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

We can see the Feb vol sitting above Jan, as expected. Other than that, it's pretty normal shaped.

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 has steadily climbed over the last 6 months. On the vol side (bottom), we can see the IV30™ is right in between the long-term and short-term realized. Note that this feels like an earnings vol bet, not an IV30™ bet.

One last thing to notice, the 20 straddle in Feb does carry a delta, so this can be seen as a bet that earnings vol will be too high (or is too high) and that CBS heads to the $20 range rather than down.

This is trade analysis, not a recommendation.

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