Tuesday, January 25, 2011

Shaw Group (SHAW) - Vol Explodes, Skew Holds Strong

SHAW is trading $37.78, down 4.1% with IV30™ up 11.6%. The LIVEVOL® Pro Summary is below.


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SHAW is a provider of technology, engineering, procurement, construction, maintenance, fabrication, manufacturing, consulting, remediation and facilities management services to a diverse client base that includes multinational and national oil companies and industrial corporations, regulated utilities, independent and merchant power producers, and government agencies.

I mean, they couldn't break that into two sentences?...

Anyway, with vol exploding, I found it on the 'IV30 One Day Increase' scan.

The company has traded over 5,000 contracts on total daily average option volume of just 1,443. The action has been in the Feb 38 puts, where over 1,900 have traded. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the puts are mostly opening (compare OI to trade size). They look like purchases to me, especially given the vol jump. Oddly, the only news I can find on SHAW is an upgrade a couple of days ago.

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

The skew looks pretty nice actually, normal(ish) with the front month elevated to the second. Earnings are not in either of those cycles (as far a I can tell).

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).

SHAW jumped on 11-29-10 (expanded global strategic partnership), dipped on 1-7-11 (earnings) and then spiked up again on 1-11-11 (spooky... all ones) from a share buy-back...

Possible Trades to Analyze
1. Get short some deltas in Feb:
Sell the Jan 37/38 call spread @ $0.50. Do the call spread rather than buying the put spread because the prices are slightly better given the width of the markets. This is simply a 1:1 MaxGain:MaxLoss bet that requires SHAW to close below $37.50 on Feb expo. Not in love with this trade.

2. Get short deltas, take on some risk:
Do #1 and sell the Feb 34 put @ $0.30. That leaves a net debit of $0.20, with naked downside risk below $33.50.

3. Calendar Spread:
Sell the Feb 37 put @ $1.00.
Buy the Mar 37 put for $1.60.
Pay $0.60 to own March.

Now that I think about it - I don't really like any of these trades that much. The skew just looks fair. This is one to watch, the skew can easily break down between strikes and months with the vol moving this much.

This is trade analysis, not a recommendation.

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