Friday, January 28, 2011

Darling Int'l (DAR) - Vol and Stock Push Earnings Skew Backward

DAR is trading $13.51, up 4.2% with IV30™ up 0.2%. The LIVEVOL® Pro Summary is below.


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DAR provides rendering, recycling and recovery solutions to the United States food industry.

Just a quick note on this one. It's active today, with nearly 20x daily average traded in the first 20 minutes. The company has traded over 5,000 contracts on total daily average option volume of just 310. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action. The Mar 10 calls are trading on zero OI - all opening. They look like purchases to me. The Feb 17.5 puts look like sales to me.

The Skew Tab snap (below) illustrates the vols by strike by month. This is where it gets interesting.

We can see the Feb 15 calls have higher vol then the Mar 15 calls due to the upside skew in the Feb options. The cool thing here is that DAR has earnings out in the Mar cycle - i.e. an earnings event. The depressed vol in Mar to Feb is unusual.

Possible Trades to Analyze
1. Skew scalp in the calendar with calls:
Sell the Feb 15 call @ $0.20 (~51 vol).
Buy the Mar 15 call for $0.45 (~49 vol).
Pay $0.25 to own the earnings OTM calls on a vol scalp in a stock with bullish order flow.

2. Trade skew intra-month.
The Feb 12.5/15 call spread trades at about the same vol once adjusted for execution prices. Paying ~ $.120 yields ~ 1:1 MaxGain:MaxLoss.

3. Skew scalp in the calendar with puts:
Try the other side if you're not buying this upside movement and order flow.
Sell the Feb 12.5 puts @ $0.20.
Buy the Mar 12.5 puts for $0.50.
Pay $0.30 to own earnings vol.

This is trade analysis, not a recommendation.

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