Tuesday, January 18, 2011

SINA - Calendar Spread on Moving Stock

SINA is trading $88.53, up 0.4% with IV30™ up 5.7%. The LIVEVOL™ Pro Summary is below.


For a limited time we are offering a FREE real-time trial to Livevol Pro™ for non-professional traders. You can get your trial by following the directions here: Click for Free Trial Offer

SINA is an online media company and MVAS provider in the People’s Republic of China (PRC) and the global Chinese communities.

This is another stock that just came up on the real-time custom scan hunting for calendar spreads between the front two months.

Custom Scan Details
Stock Price >= $5
Sigma1 - Sigma2 >= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=70
Sigma1, Sigma2 >= 1

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol Pro™.

The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. 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 front month vol simply because earnings are approaching.

Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line).

Again, the front month is elevated to the back. With 3.5 days left 'til expo, this is another interesting stock to analyze.

Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Look how the stock has ripped from the ~$40 level to now nearly $90 in just six months. The short-term realized (HV20™) vol has pushed the short-term implied vol (IV30™) to elevated levels. Both are well above the long-term historical vol (HV180™).

Finally, let's look to the Options Tab (below).

Potential Trades to Analyze
1. Calendar the front two months:
Sell the Jan 85/90 strangle @ $2.15 (~61 vol).
Buy the Feb 85/90 strangle for $8.90 (~56 vol).
Pay $6.75 for the back month versus the front. If this trade works out (i.e. SINA on Jan expo stays in [$85, $90]), an immediate sale of that Feb strangle may be in order, rather than holding that option premium and hoping for a stock move.

2. One sided calendar (just do the call side):
Since this stock likes to just go up, try to take some upside deltas on a discount. There are two versions of this trade:
2a. Buy the Jan/Feb 90 call spread for $3.60
2b. Buy the Jan/Feb 95 call spread for $2.90. If SINA stays below $95 on Jan expo, a possible extension of this trade is to sell the Feb 100 call @ hopefully more than $2. This could leave a $5 call spread in a stock that goes straight up for less than $0.90.

This is trade analysis, not a recommendation.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

Legal Stuff:

No comments:

Post a Comment