Tuesday, January 11, 2011

Mechel Open Joint Stock (MTL) - Skew Gap Opens Up on Stock Pop

MTL is trading $33.73, up 5.6% with IV30™ up 8.4%. The LIVEVOL™ Pro Summary is below.


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MTL is an integrated mining, steel, ferroalloys and power company. The Company operates in four segments: mining, steel, ferroalloys and power.

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.
NB: The IV30™ change for this guy was over 10% for a sec, that's when it showed up on my scan.

The MTL 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™: 45.46
HV20™: 37.23
HV180™: 54.32

We can see the IV30™ is squarely in between the short-term historical stock vol trend and the long-term trend.

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

This is where the fun is. Check out that vol diff between the 36 calls in Jan and Feb. That's a good 11 vol points while the ATM vols are just 3 points apart.

Finally, let's look to the Options Tab.

Possible Trades to Analyze
1. Trade the Skew
Sell 1 Jan 36 call @ $0.40 (~51 vol).
Buy 1 Feb 36 call for $ 1.10 (~44 vol).
They key here is to pay NO MORE than $0.70 for the spread. Otherwise, the slippage eats into the vol difference too much. Note that this is still a delta bet.

2. Any other kind of bets that sell that elevated skew - but watch for slippage - the markets are wide.

This is trade analysis, not a recommendation.

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