Wednesday, January 5, 2011

Pan American Silver (PAAS) - Elevated Vol, Dipping Precious Metal Prices

PAAS is trading $38.10, down 2.3% with IV30™ up 3.2%. The LIVEVOL™ Pro Summary is below.

I found this stock using a real-time custom scan. This one hunts for high vols.

Custom Scan Details
Stock Price >= $7 and <= $70
IV30™ - HV20™ >= 10
HV180™ - IV30™ <= -8
Average Option Volume >= 1,200
Industry != Bio-tech
Days After Earnings >=10 and <=60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching.

The PAAS 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).

We can see:
IV30™: 45.22
HV20™: 32.39
HV180™: 36.16

So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock. Vol is jumping on the stock drop.

Here's some news from Reuters:
Spot gold fell 2.6 percent on Tuesday, its biggest one-day drop since November, hitting $1,377.80 an ounce. Spot silver fell 4.2 percent to $29.37 an ounce.
Source: Reuters - Gold, silver miners tumble as spot prices drop

Let's look to the Options Tab (below).

We can see a lot of OTM options are bid. The $1 strikes help. Note how the Jan 45 calls are $0.10 bid as are the Jan 33 puts.

Another phenomenon, the Feb ATM straddle (with the possibility of earnings) is priced at ~ 45.5 vol while Jan ATM straddle is priced similarly at ~ 44 vol.

So the question is out there: Is this time to buy the precious metals for an upcoming rally, or is this the beginning of longer term slide?

More specific to PAAS, when are earnings? Feb or Mar? If you want to make a bet on earnings being in Feb, a calendar selling Jan to purchase Feb might make sense.

This is trade analysis, not a recommendation.

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