Friday, January 28, 2011

Ultra DJ-AIG Oil (UCO) - Oil Moves, Bullish 2x Order Flow Comes In

UCO is trading $11.61, up 8.3% with IV30™ up 10.6%. The LIVEVOL® Pro Summary is below.


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The investment seeks to provide daily investment results (before fees and expenses) that correspond to twice (200%) the daily performance of the Dow Jones UBS Crude Oil Sub-Index.

The ETF has traded 17,200 contracts on total daily average option volume of just 3,873. Calls have traded on a 4.5:1 ratio to puts. The most active line is Feb 11, where nearly 8,500 calls have traded. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Feb 11 calls are mostly opening (compare OI to trade size). I believe these are purchases.

It's interesting to note that just a few days ago, on 1-25-2011, a large put seller came in here in the Jul 11 and Feb 10 lines. In other words, this is the second day of pretty large delta bets to the upside. The largest trades from that day are included below. I believe OptionMonster wrote about that order flow a few days ago.

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

The skew is a touch rickety, but still normal shaped - no obvious bumps to trade. It is interesting that even with the vol pop today, the front month is lower than the back two.

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 ETF is prone to big moves. On the bottom, we can also see how the IV30™ (short-term implied) is popping of late though it's below the long-term realized vol (HV180™).

Possible Trades to Analyze
1. Buy some vol and bet on more big moves:
Buy the Feb 11 straddle for $1.20.

2. Sell the elevated vol:
Sell the Feb 11 straddle @ $1.15.
Buy the Feb 10/12 strangle for $0.50.
Collect $0.65 for a MaxGain:MaxLoss of 65:35. I've included the PnL chart on Feb expo for this one (below).

3. Get bullish on oil:
It's tough to get, but paying $0.50 in the Feb 11/12 call spread with the underlying at $11.50 or above could be a nice little coin flip bet, with a 1:1 MaxGain:MaxLoss ratio.

This is trade analysis, not a recommendation.

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