Friday, February 11, 2011

Anadarko Petroleum (APC) - Elevated Vol in Expiring Month

APC is trading $78.24, up 0.7% with IV30™ unched. The LIVEVOL® Pro Summary is below.


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Anadarko Petroleum Corporation (Anadarko) is an independent oil and gas exploration and production company, with 2.3 billion barrels of oil equivalent of proved reserves as of December 31, 2009.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. Again, as we approach expo, it's the skew difference that grab my attention.

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).

The front is elevated to the back and the skew has gone parabolic, creating a larger vol difference for the OTM options.

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).

What I'm interested in here is the vol portion. Check out how high HV180™ is relative to the short-term historical vol (HV20™) and the short-term implied vol (IV30™). Specifically:

IV30™: 39.09
HV20™: 32.74
HV180™: 56.58

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

Potential Trades to Analyze
1. Calendar spread the ATM options:
Sell the Feb 75/80 strangle @ $1.95 (~44 vol).
Buy the Mar 75/80 strangle for $5.32 (~40 vol).
Paying $3.37 to own Mar vs Feb. Not the greatest vol scalp though.

2. OTM calendar spread:
Sell the Feb 72.5/85 strangle @ $0.68 (~48 vol).
Buy the Mar 72.5/85 strangle for $3.00 (~40 vol).
Pay $2.32 to own Mar vs Feb.

3. One-sided calendar:
Any of the trades above but just the calls or puts. In terms of vol, the Feb/Mar 85 call spread creates a ~10 point vol scalp accounting for execution prices. Going even further OTM, the Feb/Mar 90 call spread purchases ~42 vol vs a ~57 vol sale (i.e. 15 vol point difference).

This is trade analysis, not a recommendation.

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