Tuesday, January 11, 2011

Expedia (EXPE) - Calls Active Push Vol Opportunity

EXPE is trading $26.12, up 2.4% with IV30™ down 2.8%. The LIVEVOL® Pro Summary is below.


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The order flow in the calls has created an interesting skew phenomenon. The company has traded over 25,000 contracts in the first hour on total daily average option volume of just 5,093. All but 791 contracts traded today have been calls yielding over a 30:1 call:put ratio. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action. Jan 27.5 calls have traded over 7,800x - they look like purchases to me. The Apr 25 calls have traded nearly 12,000x - these look like sales to me.

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

Note that the Jan 27.5 call vol is now above the Feb call vol. Why does that matter?.. Because, Feb has earnings.

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 IV30™ is higher than the both the HV20™ and the HV180™ as the stock has climbed in the last week or so.

Possible Trades to Analyze
1. Trade the earnings and call skew.
Sell 1 Jan 27.5 call @ $0.25 (since there is so much liquidity) (~39 vol).
Buy 1 Feb 27 call for $0.95 (~38 vol).
Pay $0.75 for earnings calls.

2. Similar to #1, but give up some deltas
Sell 1 Jan 27.5 call @ 0.25 (~39 vol)
Buy 1 Feb 28 call for $0.60 (~39 vol)
Pay $0.35 but risk a touch of upside for a few weeks.

Note, I only like these trades getting the offer for a sale in the Jan calls.

This is trade analysis, not a recommendation.

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